Universal acclaim is the response
to Glenn Stevens’s appointment as Reserve Bank Governor. The Oz: “At
a time of community concern over rising interest rates, the elevation of Glenn
Stevens to governor of the Reserve Bank of Australia sends
a welcome message of stability.” The AFR: “… financial
markets breathed an audible sigh of relief …” (what were they fearing, one is
forced to ask?). Etc, etc.

Glenn Stevens has been variously
described as “the bank’s thinker”, “hard-working”, “a Baptist”, “pragmatic”, an
“architect of the RBA’s current approach to monetary policy”, and other good
things. Henry has no quarrel with any of these descriptions, and indeed
applauds the idea, also canvassed in despatches, that Stevens has been a force
for giving weight to asset booms in formulating monetary policy – asset busts of
course always having been a significant factor, since at least the time of

The times will be more difficult for Stevens than they were for
Macfarlane. The Big Mac benefited from memories of the last big bust,
the one that “broke the stick of inflation”. Now inflation is on the
rise globally, and clearly in Australia also. In the US, inflation is
rising as activity slows, and the dreaded “stagflation” word is being
dusted off. Also, Australian households are far more indebted that they
were and this will be a reason for caution on the part of the Reserve.

At 9.30am this morning, the
Reserve Bank of Australia announced that they will be
increasing the cash rate target by 25 basis points to 6%. The accompanying statement by
outgoing RBA Governor Ian Macfarlane was notable for its hawkishness.

The Howard Government’s crucial
election promise to keep interest rates low is looking a little meaningless as
the standard variable mortgage rate is pushed to 7.83%. But according to
John Howard, his greatest political worry is not rising interest rates, but
spiralling petrol prices. A new Morgan Poll
indicates that there is indeed need to worry about petrol

The poll found that rising petrol
prices are causing financial hardship for half of the population, and serious
financial hardship for 21% of the population. Although this is less than
the impact fuel prices are having on American consumers, it does indicate that
Australians are feeling the pinch at present.

Read more at Henry

Peter Fray

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