The Prime Minister has made a major statement on economic management this morning in an effort to restate the Coalition’s credentials in the wake of yesterday’s interest rate rise.

John Howard used a speech to the Institute for Public Affairs in Melbourne to take potshots at “Hawker Britton spin” and suggest that we’ll soon be hearing that Julia Gillard’s beloved Socialist Forum is really a free market think tank.

He offered all the usual lines about a proven team and policy competence, warned the economy was entering “a challenging phase” and reminded us “the economy does not run on autopilot”. That’s true. We were given a stark reminder yesterday who has their hands on the levers. It isn’t politicians. It’s central bankers. The Reserve.

We only get to have our say on economic management every three years. The Reserve Bank Board does it every time they meet. When economic growth is slow, the Reserve Bank Board cuts interest rates to encourage spending and investment. When growth gets too fast and the threat of inflation looms, the Board raises rates.

Peter Costello seems to have given us an unwilling – but easily understood – lesson on the finer points of economic management with his off-air comments to ABC Radio host Jon Faine a few weeks ago.

Faine claims the Treasurer told him “There will not be a rate rise in November. Take it from me.”

The Prime Minister is telling us that Labor is a risk. That may be the case, but it’s a risk that comes with safety bags, front and side. Politicians talk about economic management. The Reserve, though, does much of the work.

Peter Fray

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Peter Fray
Editor-in-chief of Crikey

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