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
Banks report $14.4bn profit amid pressure on net interest margins
Australia’s major banks have reported a significant boost to their bottom lines and returns in the first half of the 2022 financial year, signaling sector-wide resilience despite persistent pressure...Read more
Banking
Major banks report rising profits
NAB and ANZ announced their half-year results this week. ...Read more
Banking
Modernisation of direct debit system suffers setback
According to the Reserve Bank (RBA), several major banks will not be able to meet the current timeline for the launch of the PayTo service. ...Read more
Banking
Australians' trust in digital providers has decreased in last five years
Australians have little trust in organisations keeping their information secure, but the financial services industry still sits atop the list. ...Read more
Banking
Commonwealth Bank chairman to retire in August
The Commonwealth Bank (CBA) board has announced a successor. ...Read more
Banking
Westpac responds to $113m penalty
The big four bank has responded to the penalty handed down last week. ...Read more
Banking
Westpac ordered to pay $113m for ‘widespread compliance failures’
Westpac has been ordered to pay penalties in the amount of $113 million for widespread compliance failures across multiple businesses, including Westpac’s banking, superannuation, wealth management ...Read more
Banking
Big bank-backed start-up raises $12.75m
A landmark fundraise by Australia’s biggest banks has secured a war chest of $12.75 million to the sector’s blockchain consortium, Lygon, to bolster its research and development into helping banks...Read more
Wrapping up an eventful 2021
Listen now
What Omicron means for property, and are units right for first-time buyers? What is equity crowdfunding? Are industry super funds tapping into member funds to save their skins?
Listen now
Will housing affordability improve in 2022? Will buy now, pay later become the norm? Why are Aussies staying in failing super products?
Listen now
Who really benefits from crypto ETFs? How will the RBA respond to rising inflation? Could a mandate help address unpaid super?
Listen now
Banking
Banks report $14.4bn profit amid pressure on net interest margins
Australia’s major banks have reported a significant boost to their bottom lines and returns in the first half of the 2022 financial year, signaling sector-wide resilience despite persistent pressure...Read more
Banking
Major banks report rising profits
NAB and ANZ announced their half-year results this week. ...Read more
Banking
Modernisation of direct debit system suffers setback
According to the Reserve Bank (RBA), several major banks will not be able to meet the current timeline for the launch of the PayTo service. ...Read more
Banking
Australians' trust in digital providers has decreased in last five years
Australians have little trust in organisations keeping their information secure, but the financial services industry still sits atop the list. ...Read more
Banking
Commonwealth Bank chairman to retire in August
The Commonwealth Bank (CBA) board has announced a successor. ...Read more
Banking
Westpac responds to $113m penalty
The big four bank has responded to the penalty handed down last week. ...Read more
Banking
Westpac ordered to pay $113m for ‘widespread compliance failures’
Westpac has been ordered to pay penalties in the amount of $113 million for widespread compliance failures across multiple businesses, including Westpac’s banking, superannuation, wealth management ...Read more
Banking
Big bank-backed start-up raises $12.75m
A landmark fundraise by Australia’s biggest banks has secured a war chest of $12.75 million to the sector’s blockchain consortium, Lygon, to bolster its research and development into helping banks...Read more
More articles
Website Notifications
Get notifications in real-time for staying up to date with content that matters to you.
