One of the nice things about an independent central bank is that, if the Treasurer wants to try to interfere with monetary policy for political reasons, he has to do it via the media:
In his first newspaper interview of the campaign, Mr Costello predicted the US economy would weaken in the wake of its subprime mortgage meltdown, and said the breakneck pace of Chinese growth could not continue.
At some stage, likely to coincide with a move to a floating exchange rate, the Chinese economy would unleash even greater instability on global markets than the US had.
“That will be a wild ride when that happens,” he said. “That will set off a huge tsunami that will go through world financial markets.”
Instability on global financial markets between now and the next Reserve Bank board meeting on Melbourne Cup day is seen by economists as the only force that could stay the bank’s hand from raising rates to the highest level in a decade.
I also noticed that the renowned financial expert and highly-skilled television host, David Koch, suggested this morning that there are a lot of “Howard fans” on the Reserve Bank board who won’t want to be seen to interfere with his chances of re-election. At this point, the economic consensus seems to be that inaction on the inflation figures would be the most egregious form of political interference.
Team Howard risks drowning itself in economic hogwash. They’ve been telling us ad infinitum that the Australian economy is strong and robust. However, at the slightest sign of a hiccup on the road, they warn us of potential instability to come and assure us that we need a steady pair of hands on the wheel (I’m not sure whether that set belong to Costello, Howard, or whether they each use one hand). There is no coherence to their arguments – they will trot out whichever line of rhetoric suits the current political aim.
ELSEWHERE: Darryl Mason has an interesting post about Costello’s scare tactics.