Hockey blasts RBA over rates policy

The federal opposition says the Reserve Bank of Australia (RBA) has some explaining to do, having misread the economy and inflation over the past year.

The attack comes 24 hours after the central bank unexpectedly slashed its cash rate
by one percentage point.
Opposition finance spokesman Joe Hockey said the bank was cutting rates when
inflation was nearing five per cent, yet last year during the federal election
campaign it raised rates when inflation was three per cent.
"So they're dropping interest rates while inflation is going up - the government
said that inflation is the number one priority," Mr Hockey told Fairfax Radio.
"The government has badly misread all of this, as has the Reserve Bank."
Assistant Treasurer Chris Bowen accused Mr Hockey and Opposition Leader Malcolm
Turnbull of making "cheap political points and engaging in cheap populism" about
interest rates.
"What the Reserve Bank has said is that we have to take action early on inflation,
that's what they did, that's what we did and I'm going to defend the Reserve Bank
here," he told Fairfax Radio.
Economists said new data showing a slump in consumer confidence and a continuing
slide in demand for new home loans backed Tuesday's decision by the central bank.
Financial markets are predicting a further one percentage point of rate cuts before
the end of the year to a cash rate of five per cent given the deepening crisis in
global financial markets.
"Unless there is an unexpectedly swift improvement in credit conditions, the (RBA)
will aim to move financial conditions back to neutral within the next three to six
months," Westpac's chief economist Bill Evans said.
"That is likely to require a further 100 basis points of cuts over that period."
The sharemarket's positive response to Tuesday's big rate reduction was cut dead by
another rout on Wall Street overnight.
The Australian market ended nearly five per cent lower following a similar falls on
Wall Street's main stock indices on fears of a deeper credit crunch leading to
severe recession.
The news will do little to calm anxious consumers.
The latest reading of consumer sentiment for October by Westpac and the Melbourne
Institute shows that prior to Tuesday's rate cut, confidence had dropped 11 per cent
from September as a result of volatile financial markets.
Smaller banks joined the four majors in cutting home loan rates by 80 basis points,
saving homeowners around $160 per month on an average $300,000 mortgage.
Queensland Premier Anna Bligh on Wednesday broke ranks with her federal Labor
colleagues by joining the opposition in calling on banks to pass on all of the RBA
cut.
"If the banks are unable to do so I think they need to be out talking to the
Australian public and to their customers about why that may not be possible," she
said.
Federal Treasurer Wayne Swan says the banks should pass on the remainder of the
official cut when financial conditions normalise, although borrowers shouldn't
expect additional relief any time soon.
The housing industry hopes cheaper home loans will help turn around a market which
has been suffering from 12-year-high interest rates and weak consumer confidence.
New government data shows demand for new home loans fell for a seventh straight
month in August with just 48,900 of home buyers receiving a mortgage approval, the
smallest monthly number in over seven years.