Phil Lowe, RBA governor

As we noted earlier this week, the inflation hawks have been having a good old screech at the Financial Review arguing that the rest of the world is raising interest rates so we should too, to wean decadent Australians off easy money — even though there’s scant evidence the rest of the world is rushing to tighten monetary policy outside the US. 

And how about across the Tasman — an economy that is often held up as a model for us, except when the lessons aren’t convenient for the Economic Reform crowd. The Kiwis have moderate growth, low inflation, low wage growth and high household debt (driven by the same cause: a boom in house prices), but it has a substantially lower rate of unemployment at around 4.4% against our 5.4% (seasonally adjusted). But today, NZ’s central bank declined to tighten monetary policy, leaving its official cash rate steady at 1.75%.

The post-meeting statement from newish governor Adrian Orr was in fact very similar to that from RBA governor Phil Lowe, but with one important exception: Orr made it clear the RBNZ is prepared to cut its key rate, while, in Australia, Lowe has made it clear the next rate movement here will be a rise: but not for quite a while. “[W]e are well positioned to manage change in either direction – up or down – as necessary,” Orr said in his meeting statement. Contrast that to what Philip Lowe said in a recent speech: “… the national accounts provided confirmation that the Australian economy is moving in the right direction. If this continues to be the case, it is likely that the next move in interest rates will be up, not down … Any increase in interest rates, however, still looks to be some time away.”

Orr also noted “the best contribution we can make to maximising sustainable employment, and maintaining low and stable inflation, is to ensure the OCR is at an expansionary level for a considerable period”.

Australia is not quite the isolated economy of easy monetary policy indulgence as Warwick McKibbin and the Financial Review suggest.