From now on, we’re all on governor-general watch.
Labor is over the moon that the Reserve Bank of Australia has read the government’s memo.
Households are crying out for interest rate relief. Inflation has cooled. Get on with it, suggested Labor with zero subtlety. Governor Michele Bullock delivered.
Like the pressure valve on a pressure cooker, the RBA just let off some steam.
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The polling spree begins
The prime minister’s team will be polling voters in the coming hours and days to give Anthony Albanese the confidence to pull the trigger on the next election. They’ll be looking for signs the dark mood of mortgage holders might be starting to budge.
The man himself rushed to schedule a series of radio and TV interviews on Tuesday afternoon to underscore what he sees as a huge political win.
“Australians will welcome this fall in interest rates today,” he told ABC Brisbane. “It’s certainly not job done, but they will welcome it.”
Treasurer Jim Chalmers was equally quick to link the “encouraging” decision to Labor policy making which is “making a meaningful difference”.
“This is the soft landing we have been planning for,” he said.
Tuesday’s decision was always about more than narrow monetary policy questions.
And like the famous 2007 rate hike that dashed John Howard’s campaign against Kevin Rudd, this decision may turn out to be a decisive political inflection point.
Major parties pin their hopes on inflection point
Labor hopes it will turn the tide, bringing unhappy households back to the Labor fold. The Coalition says it will only remind voters of how much they have lost during the cost-of-living crisis, and how much more pain lies ahead.
Already bets are rising fast on a late March or early April election day. Prospects of a May vote are diminishing. Those are the two broad options left to the prime minister.
But despite the carnival vibe within government circles over the first interest rate cut in more than four years, the bank’s signalling suggests the prime minister might want to go sooner rather than later.
For one thing, this could be as good as it gets.
Unlike previous cyclical turning points — when the bank tended to foreshadow a series of reductions — this cut stands out because it comes without such forward guidance.
Indeed Bullock gave every impression of having cut the cash rate through gritted teeth. And another might be a long way off.
“It wasn’t a lay down misere,” said Bullock, before kicking the legs out of financial market pundits betting on two or three more cuts this year.
“Today’s decision does not imply that further rate cuts along the lines suggested by the market are coming.”
“It’s not good enough for it to be back in the target range temporarily, the board needs to be confident it’s returning to the target range sustainably.”
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So what does it all mean?
Translation? This is shaping up to be one of the most miserly interest rate cuts in the Reserve Bank’s history. Potentially one and done.
The political consequences of this historically unique moment in monetary policy will play out in coming weeks.
Albanese and Chalmers anticipate it will help break down the opposition’s narrative that all is bleak. It also gives Labor something forward-looking to talk about.
Either way, rather than just dwelling on cost-of-living woes, the debate is now about the future.
But it’s not at all obvious that all voters will be rushing to thank the government.
Households are still dealing with the consequences of a permanently elevated economy-wide price level.
The inflation rate may well be slowing back toward the central bank’s 2 per cent to 3 per cent target range. But prices are still rising.
“It won’t change the fact that an Australian with the typical mortgage has spent an extra $50,000 on interest since Labor came to government,” said shadow treasurer Angus Taylor. “There’s no getting that money back.”
If there’s not going to be another cut in early April or May, Albanese might want to go to an election before that becomes reality.
