Early election date could hasten rate cut by Reserve Bank
While most economists had not been pricing in a rate cut for July, the central bank's usual reluctance to move during an election campaign could see it strike early, said Macquarie Group chief economist Richard Gibbs.
Mr Gibbs had been tipping an August rate cut, based on the Reserve Bank wanting to see the latest quarterly inflation figures, which are due in late July.
"If the Prime Minister was to go for the August 24 date for the election, which was being touted, then that may make the Reserve Bank more inclined to cut in July than August, because that would place them right in the middle of the election campaign," he said.
Despite being peppered during question time, Mr Rudd gave no indication of when he would hold an election.
Former prime minister Julia Gillard had called the election for September 14.
Citi economist Josh Williamson said the central bank had shown in the past it would not be swayed by political manoeuvres.
He pointed to the RBA raising rates three weeks from the 2007 election. "We see the election timing as being a low priority for monetary policy," Mr Williamson said.
Current polling suggests the return to Mr Rudd will make the coming election more of a contest.
Economists said this would probably result in more debate about policy, which would give business more certainty about any planned legislation. "Rudd's move makes it less certain that Australia could have a change of government and therefore less clear that there will be a big shift in the policy environment," said HSBC chief economist Paul Bloxham.
During his first address after being re-elected Labor leader, Mr Rudd made a point to address the business community and his desire to work closely with it.
There are several policy issues that will take centre stage as Mr Rudd looks to soothe the concerns of big and small business.
Bank of America economist Saul Eslake said Mr Rudd might bring forward the transition from a fixed carbon price to an emissions trading system, resulting in a fall in the price from $24.15 to around $5.
Mr Eslake also said that Mr Rudd's address suggested he could be inclined to make changes to the May budget that could boost business confidence.
"Given time, the government could seek to increase spending on infrastructure projects, which would be consistent with Mr Rudd's past enthusiasm for nation-building infrastructure."
Frequently Asked Questions about this Article…
According to Macquarie Group chief economist Richard Gibbs, if Prime Minister Kevin Rudd called an early election (for example an August 24 date being mentioned), the Reserve Bank might be more inclined to cut rates in July rather than August to avoid acting in the middle of an election campaign.
Most economists had not been pricing in a July cut. Richard Gibbs had been tipping an August rate cut because the RBA would likely want to see the latest quarterly inflation figures due in late July before moving.
The article notes Richard Gibbs expected the RBA to wait for the latest quarterly inflation numbers (due in late July) to assess inflation before deciding on a rate cut, which is why an August cut had been his baseline estimate.
Citi economist Josh Williamson argued the RBA has shown in the past it would not be swayed by political manoeuvres, noting the bank raised rates three weeks before the 2007 election. He said election timing is a low priority for monetary policy.
Current polling suggested Rudd’s return would make the election more contested, leading to more debate about policy. HSBC chief economist Paul Bloxham said that could give business more certainty about planned legislation because it made a change of government less certain and therefore reduced the likelihood of a big policy shift.
Bank of America economist Saul Eslake suggested Rudd might bring forward the transition from a fixed carbon price to an emissions trading system, which could see the carbon price fall from $24.15 to around $5. Eslake also said Rudd’s comments implied he could make budget changes or boost infrastructure spending to improve business confidence.
The article quoted Macquarie Group chief economist Richard Gibbs, Citi economist Josh Williamson, HSBC chief economist Paul Bloxham, and Bank of America economist Saul Eslake on topics including the timing of RBA rate cuts, the influence of an election on monetary policy, business confidence, and carbon-pricing policy.
The article explains the RBA is usually reluctant to move interest rates during an election campaign, which is why a cut before a campaign (for example in July if an early election were called) could be more likely than one in the middle of the campaign.
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