(Bloomberg) — Australian Treasurer Jim Chalmers’ plans to overhaul the Reserve Bank suffered a major setback after the left-wing Greens party demanded the government order the central bank to cut interest rates.
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Greens economic spokesman Nick McKim said the minority party would withhold its support for the reform bills until rates had been lowered, and if the RBA didn’t cut them at Tuesday’s board meeting, Chalmers should force it to do so. The government has never used its reserve powers to overrule the central bank.
“The Reserve Bank board are not infallible high-priests of the economy who are above criticism,” McKim said in a statement on Monday. “Both the treasurer and the Reserve Bank governor have said they want this legislation passed. Now they know what they have to do to get it done.”
Economists expect the RBA will hold the cash rate at a 12-year high of 4.35% on Tuesday — and keep it there until at least February. Governor Michele Bullock has said rate cuts are unlikely this year as inflation is proving sticky.
Chalmers had originally wanted to negotiate with the center-right Liberal-National opposition to pass the RBA reform legislation, which would split the central bank board into two separate bodies – one setting monetary policy and another overseeing governance. The treasurer had wanted to steer clear of dealing with minor parties like the Greens to stave off more radical changes.
However, the opposition unexpectedly announced earlier this month that it would no longer negotiate on the laws, forcing Chalmers to consider working with minor parties to pass the bills.
Finance Minister Katy Gallagher rejected any suggestion that the government would give way to the Greens on a rate cut, effectively leaving the reforms dead in the water for now.
“It’s crazy what they’re saying to us,” Gallagher told the Australian Broadcasting Corp. on Monday. “We won’t work with that because that is crazy, it’s economically irresponsible and we won’t do it.”
The Greens’ rate demand aims to capitalize on price pressures that are fueling discontent among voters. A Newspoll survey published in the Australian newspaper on Sunday showed primary support for the ruling Labor party has dipped to its equal lowest since the 2022 election with housing — including rents and mortgages — emerging as the most significant cost-of-living issue, eclipsing grocery and energy bills.
The government is conscious of pressures on Australians and is doling out electricity and rental rebates to households. The moves are expected to lower headline inflation to under 3% by mid-2025, according to RBA forecasts.
Gallagher said Monday the government was committed to the RBA reforms, which were recommended by a review of the central bank released in 2023. Governor Bullock has said she’d like to see the legislation pass the parliament so the RBA can begin bedding down the changes.
–With assistance from Swati Pandey.
(Adds chart, Newspoll survey.)
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