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
Open Banking data proves superior to screen scraping, Frollo study reveals
Frollo, a leading Open Banking provider in Australia, has published a study demonstrating the superior quality of data obtained through Open Banking compared to traditional screen scraping methods, ...Read more
Banking
Global banknote study reveals gender disparity: Only 7.54% depict women
A recent study by TradersBest has uncovered a significant gender disparity on the world's banknotes, with findings indicating that out of 716 individuals featured across 115 countries, only 54 are ...Read more
Banking
JPMorgan Chase leads the global banking sector in AI adoption, outpacing rivals
A recent study indicated that JPMorgan Chase has positioned itself as the leading force among financial institutions embracing artificial intelligence (AI) for enhancing customer satisfaction and ...Read more
Banking
Exact Payments acknowledged as a leading payments ISV by the Electronic Transactions Association
The Electronic Transactions Association (ETA), a prominent advocacy and trade association for the payments industry, has recognized Exact Payments as one of the Top 10 Payments Independent Software ...Read more
Banking
The future of digital banking in Australia: Trends and implications for investors
As technology continues to reshape our lives, its influence on the financial sector is particularly transformative. One sector at the epicentre of this change is banking. Read more
Banking
ANZ sued for allegedly misleading customers
The corporate regulator has commenced civil proceedings in Federal Court. Read more
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
Open Banking data proves superior to screen scraping, Frollo study reveals
Frollo, a leading Open Banking provider in Australia, has published a study demonstrating the superior quality of data obtained through Open Banking compared to traditional screen scraping methods, ...Read more
Banking
Global banknote study reveals gender disparity: Only 7.54% depict women
A recent study by TradersBest has uncovered a significant gender disparity on the world's banknotes, with findings indicating that out of 716 individuals featured across 115 countries, only 54 are ...Read more
Banking
JPMorgan Chase leads the global banking sector in AI adoption, outpacing rivals
A recent study indicated that JPMorgan Chase has positioned itself as the leading force among financial institutions embracing artificial intelligence (AI) for enhancing customer satisfaction and ...Read more
Banking
Exact Payments acknowledged as a leading payments ISV by the Electronic Transactions Association
The Electronic Transactions Association (ETA), a prominent advocacy and trade association for the payments industry, has recognized Exact Payments as one of the Top 10 Payments Independent Software ...Read more
Banking
The future of digital banking in Australia: Trends and implications for investors
As technology continues to reshape our lives, its influence on the financial sector is particularly transformative. One sector at the epicentre of this change is banking. Read more
Banking
ANZ sued for allegedly misleading customers
The corporate regulator has commenced civil proceedings in Federal Court. Read more
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