BEN HARVEY: Why the RBA shouldn’t have cut interest rates

As a poorly paid newspaper hack flirting with the poverty line, I was thankful that Michele Bullock cut interest rates.

But I don’t think she should have.

The Reserve Bank wants inflation to be between two and three per cent and the last official inflation figure we saw had it at 3.2 per cent.

So, to my mind the only way Bullock should have cut rates was if she believes 3.2 is between two and three — in which case we’ve got bigger problems than inflation because the head of this nation’s central bank can’t count.

It’s hard to think anything other than that RBA board members were hoodwinked by Jim Chalmers’ carefully choreographed attempt to jaw-bone them into cutting the official rate.

It shouldn’t be this way because the RBA is meant to be independent of government and unswayed by popular opinion.

In its pursuit of keeping inflation between 2 and 3 per cent the bank is meant to act like an economic Terminator — it can’t be bargained with and can’t be reasoned with.

It’s meant to be guided by numbers, not words.

Tuesday’s decision suggests words count. If that’s the case then take a bow the Government’s spin machine.

The ALP’s political operatives had been seeding the media with pro-rate cut stories for months.

They weren’t exactly subtle, either. Jim Chalmers himself said high rates were “smashing” the economy.

One-time world’s greatest treasurer Wayne Swan accused Bullock of financial bastardry.

Bob Hawke’s economic Svengali Ross Garnaut argued for a cut, as did Julia Gillard’s former numbers man Stephen Koukoulas.

Labor-aligned commentators hammered the point in the hope that Chalmers wouldn’t look like a fool for claiming at the Federal Budget that inflation was being tamed.

Everyone wanted Bullock to drink the Kool-Aid and fall victim to the interest rate group-think that gripped the nation since Christmas.

Job done. But what now?

Labor seems to have convinced itself that 0.25 per cent off the mortgage is an election panacea.

John Howard’s political career is seen as rude evidence of the power of RBA decisions.

He was on the nose in 2001 because of his GST backflip but clinched victory after a host of interest rate cuts and lost the 2007 election after the Reserve tightened its belt.

It’s a simplistic view of history, of course, because Howard was saved more by September 11 than low rates and was a victim more of “it’s time” than “I’m losing my house” in six years later.

History suggests the Reserve’s influence is exaggerated — Kevin Rudd’s loss in 2013 came despite four rate cuts in the preceding 12 months and the half a dozen rate hikes a year out from the 2010 election didn’t stop Julia Gillard returning to the Lodge

If Anthony Albanese returns to the Lodge at the next election he may rue the day the RBA cut rates.

What if Bullock acted too soon? How will Australians react if she is forced to raise rates soon after the election because the inflation genie wasn’t back in the bottle, after all?

Property prices are still steaming, the employment market is still so tight anyone can get a job (I’m looking at you Tanya Plibersek) and Donald Trump’s trade war risks the prices of everyday goods going up.

American inflation moved at the fastest pace in almost a year a half last month — and that was before we had any tariffs so who knows what’s in store.