Michael Pascoe writes:

The gormlessness of Howard and Costello
distancing themselves from today’s rate rise ahead of the decision, hinting
that maybe it wasn’t necessary, is understandable given the impact it will have
on the vital marginal seats of Sydney and Melbourne.

This rise will have negligible impact on
the boom states where the main heat is being generated. For WA and Queensland, it’s a
mosquito. It will be felt in the laggard
states, especially NSW, where it’s a definite spider bite. It will take a
little time to find out how venomous the spider might be.

The “head in the oven” of our dual economy
will remain just as hot, but the “feet in the freezer” will get uncomfortably
colder. The RBA’s hope nonetheless is that the average temperature is lowered a
bit.

This problem underlines what a very blunt
instrument monetary policy is. Only about a third of households have a
mortgage, but they’re generally the ones that bear most of the pain in this
effort to cool the economy.

A sharper alternative would be making the
GST rate a moveable feast – that way the burden of dampening the economy would
fall more equally on all consumers instead of just the borrowers. But this
fiscal alternative to monetary policy has no chance of getting up – the politicians of both sides prefer to try
to hide from economic management responsibility. It’s much safer just blaming
the RBA.

And speaking of the RBA and politicians,
there’s a subtle line in the RBA’s statement that seeks to correct the Federal
Government’s attempts to re-write economic history. The RBA notes that the
low-inflation era started in 1993 – not 1996 as the Howard/Costello mob
routinely claim.

What happens next? According to Macquarie
Bank’s Rory Robertson, in an interview with Eureka Report, we’ll find out in three months time because the RBA has set a template
now of only moving after the quarterly CPI figures.

Maybe they could save us some money by
cancelling the monthly board lunch then and moving to just four board meetings
a year.

Peter Fray

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Editor-in-chief of Crikey

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