Former Reserve Bank Chief Recommends 50-Point Rate Cut

The Reserve Bank of Australia is expected to make an announcement regarding rate cuts, Analysts and observers are expecting that the bank will set the cut at 25 points based on the recommendation of its board members.

They have insisted that a larger rate cut does not justify since Australia’s economy is doing better, not weaker. If not for the global financial crisis, the bank has not actually done a rate cut larger than 25 points in almost a decade.

But its former governor, Bernie Frasier, is challenging its head to put interest rate cuts at 50 points.

Fraser, who headed the Reserve Bank of Australia from 1989 to 1996, said that cutting 50 points trumps expectations. He added that everyone expects at least a quarter. A rate cut of 50 points can also lower cash rate from 4.25 to 3.75 percent.

Just before the board meeting yesterday, TD Securities released an inflation gauge where it puts the inflation at 1.9 percent.

The Reserve Bank has this pegged at 2 to 3 percent. Fraser said he once opposed the letter of agreement signed by his successor Ian Macfarlane with Coalition treasurer Peter Costello in connection to this target.

He said he knew of the letter as Macfarlane showed him a draft. He, however, also told him that he wouldn’t sign a letter like that because it was not his call to do so.

Fraser said the agreement is not necessary as there is already a Reserve Bank Act that covers giving priority to inflation. He added that orthodox central bankers know they should prioritize inflation.

Tagged Bernie Frasier, Ian Macfarlane, Peter Costell, Reserve Bank of Australia