Harvey Norman Chairman Gerry Harvey is heading for a show down with Federal Treasurer Jim Chalmers who is desperate for the Reserve Bank to cut interests, in an effort to make his Labor Party look good during the current election campaign, Gerry Harvey disagrees.
While Chalmers is pushing for a half a percent rate cut, Gerry Harvey has warned that cutting interest rates by 50 points is a big mistake.
Having already tried to stack the RBA board, Chalmers is now pushing for an emergency Reserve Bank board meeting in an effort push his case, he has the backing of former RBA governor Bernie Fraser who claims that cutting by half a percentage point before mid-May would be a “good step”
Gerry Harvey claims that there is no logical reason to hold an emergency meeting and cut by half a percentage point because such action would only cause panic.
“I don’t think we should be cutting interest rates just yet.
“Why would you cut by 50 basis points? We need to keep our powder dry,” he said. “Losing confidence can spread like wildfire and if that happens, we’re in the shit and that could lead to a recession.”
In March last year, the final report from a recent RBA Review made the recommendation that we strip Australia’s treasurer of the power to overrule actions taken by the Reserve Bank.
Late last year senators in Canberra tried to get to the bottom of the recommendations.
They invited former Reserve Bank governors Ian Macfarlane and Bernie Fraser, former Liberal treasurer Peter Costello, and highly respected economic historians to share their opinion of the recommendation.
Everyone criticised it.
RBA governor Michele Bullock said the Reserve Bank hadn’t pushed for the change, and the RBA had enough independence already.
“I don’t think there’s any deep thinking gone behind the decision to get rid of Section 11,” Mr Macfarlane told MPs.
The overrule power is found in Section 11 of the Reserve Bank Act 1959.
It’s a legislative mechanism that sets out the steps a treasurer can take to formally overrule the Reserve Bank.
The power has never been used by an Australian government, but the fact that it could be used has been enough to encourage governments and Reserve Bank officials to keep working, behind closed doors, to resolve major policy differences with respectful dialogue.
Gerry Harvey’s call came as Deutsche Bank backed a jumbo half percentage point rate cut that will benefit retailers in Australia if Australians start shopping again.
“The only problem is that Trump tariffs are pushing down the value of the Australian dollar with the possibility that Australians could be facing price rises across multiple categories of goods in the future” said a major competitor to Harvey Norman.
Jim Chalmers has already met with RBA governor Michele Bullock and the heads of the big four banks and is today convening a meeting of the Council of Financial Regulators to discuss the stability of the market.
The Australian newspaper claims that while a larger rate cut is possible, the RBA is not considering an emergency meeting and will stick to its existing schedule of a May 19-20 meeting.
