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Reserve Bank will make history if it lifts ra -

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Reserve Bank will make history if it lifts rates

Stephen Long reported this story on Tuesday, December 1, 2009 12:39:00

ELEANOR HALL: As the Liberal Party was electing a new leader in Canberra this morning the board of
the Reserve Bank was meeting in Sydney.

On its agenda whether or not to lift interest rates for a record third month in a row.

Most market economists are expecting the bank to announce a pre-Christmas rate hike this afternoon,
despite market jitters and fears of debt default in Dubai.

Joining us to discuss the issues confronting the RBA board is our economics correspondent Stephen
Long.

So Stephen, how likely is it that the RBA will lift rates?

STEPHEN LONG: Eleanor, if you believe the professional pundits, the economists who are paid to pick
these things, it is a near certainty.

Nineteen out of 20 economists surveyed by the financial wire services yesterday were tipping a
rates rise and I got a missive from the bloke I think was standing out and holding out against it
and he has changed his mind so that is a consensus.

Seventy-six per cent chance according to the futures markets of a rates rise being announced this
afternoon at 2.30 Sydney/Melbourne time but I think that is probably overstating it.

I think it is going to be a close call for the Reserve Bank. I suspect that they will go in with a
rates rise recommendation but we've had mixed data on the economy here. We've got still a fall in
working hours in the economy, the latest building approvals were pretty weak and there is really no
urgency to rush and so I think it is going to be a very, very close call.

ELEANOR HALL: What was it that made the maverick economist there change his mind?

STEPHEN LONG: That Terry McCrann came out in the Murdoch Press and said that it was a near
certainty. That is what changed his mind. He thinks that Terry is well connected.

ELEANOR HALL: Okay, well look the RBA has made it clear that, you know, its emergency setting is no
longer appropriate. Why wouldn't it lift rates?

STEPHEN LONG: Well, one of the reasons is that although inflation is above the target band, it is
coming down and so there is no urgency to do so. The other is that the US economy is still fairly
weak. The last growth figures out of the US were revised down and all the growth is coming from
government spending.

There is still a lot of uncertainty and fears of further risk in the banking system and it is just
before Christmas and they have only gone twice in December over their history since we have had a
cash rate and does the Reserve Bank governor really want to be the Grinch just before Christmas.

Why not wait until after Christmas and see how the Christmas sales pan out. That is the case for
waiting. We will find out this afternoon whether they take up that case or they move as expected
and lift rates again for a record third month in a row.

ELEANOR HALL: Stephen Long, our economics correspondent, thank you.