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Can a rate cut decide an election?

Scott Morrison, Bill Shorten. Images: Getty
Scott Morrison, Bill Shorten. Images: Getty

The Reserve Bank of Australia will deliver its official cash rate decision this afternoon, following more than two years of hold decisions.

And while the majority of experts believe the RBA will not move today, some among Finder.com.au’s panel of experts – including Market Economics’ Stephen Koukoulas, ANU’s John Hewson and AMP’s Shane Oliver – believe today’s decision will be a cut.

“Rate cuts were already on the way thanks to slower economic growth and the downturn in the housing cycle, but weaker than expected underlying inflation in the March quarter argues that the RBA should move sooner rather than later,” Oliver said.

“The drop in inflation in the first quarter is the tipping point for the first RBA rate move since 2016,” added QIC’s Matthew Peter.

“The RBA has been clear in its intent that if inflation were to falter, rates would be coming down. This is now the case, so there is no longer any hurdle for a rate cut.”

But with an economy and property-focused election just days away, the ramifications may be broader.

Speaking to Yahoo Finance, realestate.com.au’s chief economist, Nerida Conisbee said adjusting an interest rate in the days before a federal election is not unheard of.

“We have had a couple of times that they've done that. It's not going to be necessarily a deterrent,” she said, predicting that if the RBA doesn’t cut today, they will before July.

Asked whether rate cuts have the power to sway an election, Conisbee was less certain.

“It's funny with rate cuts. On one hand, you don't cut rates unless things are bad news,” she said.

“You've got some pretty weak economic data, so that sort of shows that things are bad and so on that measure, you'd think perhaps that less people would vote for the Coalition because it kind of shows that they're not doing a good job.”

However, voters may also believe that a Coalition government is stronger than the ALP in weak economic times.

“The other aspect though is that we can see with housing, people love a rate cut and it affects them directly because their mortgages become cheaper.

“From a consumer perspective, a rate cut is always welcome because people don't have to pay so much.”

It’s also a difficult decision for the bank, Monash University professor Mark Crosby said in a piece for The Conversation today.

The RBA wants, and should, appear independent, he said.

“Cutting rates ahead of an election runs the risk of making it look as if it is trying to help the government, although ironically, at the moment a rate cut might help the opposition by putting beyond doubt its argument that the economy is weak.”

Both Treasurer Josh Frydenberg and shadow treasurer Chris Bowen agreed on the reserve bank’s independence on Monday.

However, Labor argues a rate cut is a clear sign of the Coalition’s economic mismanagement.

Several economists are predicting a hold today, primarily due to the election.

Laing + Simmons’ Leanne Pilkington said it would be “appropriate” to leave the 1.50 per cent interest rate on hold because of the upcoming election.

“They may (finally) want to cut what with the disastrous recent inflation numbers, but they may then revive the doctrine that interest rate changes during an election campaign are 'political', something that Glenn Stevens effectively refuted by pointing out that not cutting rates was also political,” Lateral Economics Nicholas Gruen said.

“I think they'll find it (psychologically) easier to sit on their hands for another month.”

The RBA will deliver its rate verdict at 2:30pm today.

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