Early poll date could hasten interest 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…
Yes — the article says the chance of an early RBA rate cut could increase if Prime Minister Kevin Rudd calls an early election. Macquarie Group chief economist Richard Gibbs noted the RBA’s usual reluctance to move during an election campaign might push the bank to act sooner, potentially making a July cut more likely than August in that scenario.
Economists are split. Macquarie’s Richard Gibbs had been tipping an August rate cut to allow the RBA to see quarterly inflation figures due in late July, but said an early election could bring that forward to July. By contrast, Citi economist Josh Williamson noted the RBA has often resisted political pressure and called election timing a low priority for monetary policy.
According to the article, current polling suggests Kevin Rudd’s return makes the election more competitive, which will likely spark more debate about policy. HSBC chief economist Paul Bloxham said that increased policy debate can give businesses more certainty about planned legislation and that Rudd’s move makes a big shift in the policy environment less certain — potentially calming some investor concerns about abrupt policy change.
No — the article says Mr Rudd gave no indication of when he would hold an election, despite being pressed in question time. Macquarie referenced an August 24 date that had been touted, explaining that an August election could make the RBA more inclined to cut in July rather than during the campaign.
Yes — Bank of America economist Saul Eslake suggested Mr Rudd might bring forward the transition from a fixed carbon price to an emissions trading system, which could reduce the carbon price from about $24.15 to around $5. Such a move would lower compliance costs for some businesses and could shift investment and cost expectations for affected sectors.
The article reports Saul Eslake saying Mr Rudd’s address hinted he could be inclined to tweak the May budget to boost business confidence. Economists also said the government could seek to increase spending on infrastructure projects, aligned with Mr Rudd’s past focus on nation-building — moves that could support activity in construction and related industries.
The article notes Citi’s Josh Williamson pointed out the RBA has shown it will not necessarily be swayed by political manoeuvres — for example, the RBA raised rates three weeks before the 2007 election. That history suggests election timing is not a guaranteed driver of monetary policy decisions.
Investors should monitor: announcements about any election date from Prime Minister Kevin Rudd, the RBA’s statements and meeting dates, the quarterly inflation figures due in late July (which Macquarie flagged as important), and any policy hints on carbon pricing, budget changes or infrastructure spending, since economists in the article flagged these as potential market movers.
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