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The Forum > Article Comments > Emergency is over, but no rate rise for Christmas > Comments

Emergency is over, but no rate rise for Christmas : Comments

By Henry Thornton, published 1/12/2009

Australia's economic recovery is faster than expected which may reduce the need for government spending cuts and/or tax hikes.

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"

Welcome to Ruddflation and interest rates that will exceed the highest in the last decade."

shadow minister - when was the last time the cash rate was as low as 3.75%, let alone the 3% that the RBA first brought it down to? The target for the cash rate has been published for approximately the past 25 years, it has not been as low as it is today in all that time.

The official position of the RBA is that a cash rate of 5%-6% is neutral, neither expasnionary nor contractionary. This may be debatable but it is what the RBA thinks.

The RBA sets the cash rate independently of the governments spending approach.

The current rate of 3.75% is considered to be stimulatory. It will not be considered to be in the "normal" neutral range again until it has risen by another 125 basis points - 5 more consecutive rises of the size that we have seen so far.

There isn't much point talking about worrying general inflation until the cash rate has passed at least 6%.

This is why Tony Abbot's recent assertion that "every interest rate rise for the next 12 months is the result of the government's reckless spending" is such a deplorable porky. If the RBA decides that the economy is showing signs of recovery, there is no way it is going to leave the cash rate at 3%. It would consider that to be inflationary unless the economy was weak and will proceed to keep raising it as the economy recovers.

And that is exactly why they have rapidly risen from the extreme low of 3% to the still very low position of 3.75%.

Abbot most certainly understands this - he is out to score some cheap political points because he knows that such a claim will resonate with at least a few voters.

And doesn't he need some of those.
Posted by Fozz 2, Saturday, 5 December 2009 4:18:22 PM
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