General News
21 February, 2025
Is one cut enough to save Albanese?
Could this be as good as it gets for the Albanese government.
While Tuesday's 25 basis point interest cut, the first since 2020, was welcome one swallow does not make a summer.
Moments after the RBA released its Statement on Monetary Policy, the ASX dipped, and the money markets put the likelihood rates would stay on hold when the board meets on April 1 at 86 per cent.
That was a direct reaction to the RBA's statement that "the board remains cautious on prospects for further policy easing".
The clear takeaway from the RBA's messaging was that while there was no compelling reason not to cut the rate this will be the last one for quite a while.
Ms Bullock referenced the fact the cut wound back the controversial 25 basis point rate increase on November 8, 2023 which, in her words, some people had regarded as "overdoing it". "We've taken that off but we are still restrictive," she said.
"Overdone" is an understatement. The November 2023 rate hike was criticised as pre-emptive, restrictive and unnecessary given the pain already being experienced by households, the parlous state of the national accounts and the fact the economy was in a technical recession at the time.
"In the September quarter [2023] household living standards fell as rate rises continued to hurt. And then, in November the RBA decided to hurt them again," the Australia Institute's David Richardson wrote at the time.
"The RBA got it wrong on its call on interest rates. It was wrong on the cause of inflation - ignoring the research around the world showing the impact of company profits rather than wages - and it was wrong in November [2023] to keep hurting households already in great pain."
While it would be wrong to suggest Ms Bullock was saying the RBA had made a mistake, her comments suggest one reason for Tuesday's cut was to correct an overreach while keeping interest rate policy restrictive.
Although the governor would not go so far as to say it was a case of "one and done", on Tuesday, she said pundits factoring in "quite a few more cuts" between now and early 2025 were "overly optimistic" and "unrealistic".
None of this is good news for the Prime Minister who is grappling with the fraught question of when to go to an election.
While the conventional wisdom has been that if the rate was cut he would go to the polls before the budget, due to be handed down on March 25, there are now arguments for and against.
Dr Jim Chalmers' claims that "this is the rate relief Australians need and deserve", that "this is the soft landing we have been planning for and preparing for", and "the worst of the inflation challenge is behind us" don't stand up to close scrutiny.
Once the initial euphoria about an interest cut that will save families with a $775,000 mortgage an estimated $120 a month dissipates people will quickly realise that it could be a long time between drinks.
And, significantly, if inflation stays sticky, the next rate move might even be back up.
"If monetary policy is eased too much too soon, disinflation could stall, and inflation would settle above the midpoint in the target range," the RBA said in a statement.
"The board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that outcome".
While the PM could be wise to go to a poll sooner rather than later on the basis this could be as good as it gets, there is universal agreement the economic outlook is as volatile as it has ever been.
President Trump continues to throw economic hand grenades, there is great uncertainty about what will happen in Ukraine, and people are struggling with sticker shock every time they go to the supermarket.
Mr Albanese is going to have to pay his money and take his chances.