Borrow
‘Conundrum’ sees Costello ponder October rate cut
There’s a fair chance Australia is headed for a further cash rate cut tomorrow, according to former federal government treasurer Peter Costello.

‘Conundrum’ sees Costello ponder October rate cut
There’s a fair chance Australia is headed for a further cash rate cut tomorrow, according to former federal government treasurer Peter Costello.

Speaking last week at Yahoo! Finance’s All Markets Summit, the longest-serving commonwealth treasurer to date went so far as to say that a rate cut on the first Tuesday of October “may not be the end of it”.
“We’ve never lived through interest rates this low,” he said.
“We’ve never lived through a cash rate of 1 per cent and it’s going lower.”
Calling the current economic conditions “abnormal times”, Mr Costello reflected on the “big conundrum” affecting Australia at the present time.
He began by acknowledging that indicators of the Australian economy are “reasonably good”.
“And yet, we have interest rates which are near-emergency levels,” he said.
“What do we conclude from that? That the interest rates are wrong? Or do we put it the other way around and ask ourselves, well, where would the economy be if the interest rates were normal?
“Do we look at an economy that’s reasonably good on the indicators and say the glass is half full? Or do we look at it [as] an economy which is propped up by emergency interest rates and say, actually it’s half empty?”
According to the former treasurer, “we’re actually sitting at a pretty sweet spot”.
“If you want some evidence of that, we’re running trade surpluses and current account surpluses,” Mr Costello said.
While growth for the year was just 1.4 per cent, he advised that 1 per cent of that growth had come in the last two quarters.
So, “why would the bank be thinking of cutting rates now?” Mr Costello asked of the crowd present.
He cited the speech given by Reserve Bank of Australia governor Philip Lowe at Armidale Business Chamber where he said “we don’t want our exchange rate to go up”.
Paraphrasing, Mr Costello said “what he was basically saying was this: if everybody else in the world is cutting rates and we don’t follow, our exchange rate will go up”.
“There’s a bit of a race to have the lowest exchange rate at the moment.”
The former politician said that “in the trade, it’s known as the race to be the shortest pygmy”.
“Rates are all going down and you want to be the shortest pygmy in the room,” he continued.
“The US wants to devalue, Europe wants to devalue, [and] the pound – Brexit’s going to fix the pound’s devaluation.”
The former treasurer further explained that “we don’t want the AUD going up at a time when everybody else is going down”.
“So, to a degree, if everybody else is into rate cuts, we’ll be part of it as well because we want that stimulation of a competitive exchange rate, and I think that’s a very big part of the bank’s thinking at the moment.”
About the author

About the author


Banking
BOQ sets sights on big 4 banks with latest merger
The Bank of Queensland has announced that it will buy ME Bank for $1.3 billion in a bid to challenge the dominance of the big four banks. ...Read more

Banking
CBA liable for overcharging 1,510 customers in excess of $2.2m
Commonwealth Bank has been held accountable for overcharging 1,510 customers in excess of $2.2 million, among a suit of other breaches including “deceptive conduct”. ...Read more

Banking
Consumers let down by government failures on the banking RC
In the two years since the financial services royal commission, super fund members, bank customers and insurance policyholders have all been let down by the federal government’s failure to implement...Read more

Banking
ASIC’s chair to leave despite being cleared of wrongdoing
ASIC chair James Shipton will leave the financial regulator permanently, despite being cleared of any wrongdoing. ...Read more

Banking
NAB snaps up neobank in $220m deal
NAB is set to snap up a neobank in a deal said to cost $220 million, as it looks to enhance its digital offering. ...Read more

Banking
368k Australians potentially eligible for Westpac class action: Are you one of them?
The Federal Court is set to notify 368,000 Australians that they might be eligible to join a consumer credit class action against the big four bank. ...Read more

Banking
Government introduces royal commission laws
The government is striving to implement a number of the royal commission recommendations in a package that was recently introduced to Parliament. ...Read more

Banking
ANZ cops $10m penalty for wrongful fees
The Federal Court of Australia has found that banking giant ANZ engaged in unconscionable conduct and breached its obligations as a financial services licensee. ...Read more

Banking
BOQ sets sights on big 4 banks with latest merger
The Bank of Queensland has announced that it will buy ME Bank for $1.3 billion in a bid to challenge the dominance of the big four banks. ...Read more

Banking
CBA liable for overcharging 1,510 customers in excess of $2.2m
Commonwealth Bank has been held accountable for overcharging 1,510 customers in excess of $2.2 million, among a suit of other breaches including “deceptive conduct”. ...Read more

Banking
Consumers let down by government failures on the banking RC
In the two years since the financial services royal commission, super fund members, bank customers and insurance policyholders have all been let down by the federal government’s failure to implement...Read more

Banking
ASIC’s chair to leave despite being cleared of wrongdoing
ASIC chair James Shipton will leave the financial regulator permanently, despite being cleared of any wrongdoing. ...Read more

Banking
NAB snaps up neobank in $220m deal
NAB is set to snap up a neobank in a deal said to cost $220 million, as it looks to enhance its digital offering. ...Read more

Banking
368k Australians potentially eligible for Westpac class action: Are you one of them?
The Federal Court is set to notify 368,000 Australians that they might be eligible to join a consumer credit class action against the big four bank. ...Read more

Banking
Government introduces royal commission laws
The government is striving to implement a number of the royal commission recommendations in a package that was recently introduced to Parliament. ...Read more

Banking
ANZ cops $10m penalty for wrongful fees
The Federal Court of Australia has found that banking giant ANZ engaged in unconscionable conduct and breached its obligations as a financial services licensee. ...Read more