Rate cut won't help Albo much

The RBA's decision to cut interest rates by 0.25 per cent this week should have come as no surprise in the current political climate, with an election looming and the Albanese Labor Government desperate to claw back some credibility.

But… the Reserve Bank is independent and doesn't succumb to political pressure, does it? That's the theory, but the facts could suggest otherwise. Several leading economists have declared it was the wrong move, which could add to inflationary pressures and virtually rule out any further cut when the board meets again in April.

The Australian Financial Review reported some of the comments leading up to the last meeting:

Labor backbencher Sam Rae declared on Monday "my community needs a cut."

Junior minister Matt Thistlethwaite said borrowers "deserve some rate relief" while Labor MPs Mike Freelander and Graham Perrett pushed for a jumbo 0.5 percentage point rate reduction.

Their demands followed months of calls for immediate cuts from Labor-aligned commentators including Craig Emerson, Ross Garnaut and Wayne Swan.

Even the big banks weighed in. … One former senior RBA official said they had never seen a pressure build-up like it…

Meanwhile, a leading economist claimed mortgage holders could face interest rate hikes later this year as a result of the RBA decision:

Judo Bank chief economic adviser Warren Hogan predicted a "disaster situation" unfolding because it's still too early for rates to come down.

Mr Hogan believes the RBA board risks driving up inflation before it's truly under control.

"It might sound attractive to a lot of Australians with mortgages to get a rate cut or two and save $50 a month in the short-term over the next six months, maybe even 12 months," Mr Hogan said.

"But if that puts at risk rates going up by a percentage point or two, and then having to come up with actually not just that $50 back, but then another $100 or $150, do they really want that $50 right now and then putting at risk that it's going to go up later?

Sky News host Sharri Markson called the rate cut "economically reckless" and perhaps "politically motivated".

Ms Markson suggested Reserve Bank Governor Michele Bullock "caved into" a marginal interest rate cut under sustained political pressure.

"Serious economists and former RBA officials have criticised the decision, which could worsen inflation and the cost-of-living crisis." She interviewed some outspoken experts:

But will the cut from 4.35 percent to 4.10 percent make much difference to Labor's electoral chances in the face of polls which continue to show a steady overall decline and lack of support for Prime Minister Anthony Albanese's leadership.

Considering it comes after 12 interest rises and a list of broken promises, I very much doubt it.

Regardless of whatever spin Treasurer Jim Chalmers and PM Albo try to put on the level of inflation, we all know how pledges such as a $275 annual reduction in electricity bills (repeated almost 200 times in the lead up to the last election) have panned out. Apparently that was just "aspirational" along with cost of living relief, mortgage relief, government transparency and "my word is my bond". We all know costs have gone through the roof, fanned largely by power prices which have risen by an average of $1000 and their flow-on effect on food prices and small business failures.

According to Albo and his Energy Minister Chris Bowen, "renewables" are the cheapest form of energy because "the sun and the wind don't send you a bill." But if that was true our bills would be trending down and there would be no need for billions in subsidies to energy companies or direct temporary handouts to consumers struggling to meet their invoices.

The sun and the wind are also intermittent, producing nothing at night or when the wind doesn't blow. Storage batteries can't compete with reliable baseload power required by our remaining manufacturing industries. The so-called solar and wind "farms" with thousands of km of new transmission lines are consuming huge areas of arable farmland and native forests home to koalas and other threatened species. Huge off-shore wind turbines threaten whale migration routes and commercial fishing grounds.

We could once boast one of the world's lowest power prices, now we have one of the highest because of the Labor Government's obsession with "net zero" CO2 emissions. This is an unachievable green dream with total reliance on unreliable renewables and an unrealistic ban on nuclear energy which makes Australia a laughingstock on the world stage.

The Paris Agreement which both Labor and the Federal Coalition still adhere to is pretty much dead in the water since one of the first actions of US President Donald Trump was to withdraw the US, declare a national energy emergency and pledge to "drill baby, drill".

Meanwhile, yet another green dream has bitten the dust with the South Australian Government withdrawing its $600 million backing for a green hydrogen plant at Wyalla to support the $2.4 billion steel works rescue package announced by the PM and Premier Peter Malinauskas in the wake of the RBA interest rate cut. This is just the latest in an ever-expanding conga line of major backers pulling the plug on green hydrogen, green aluminium and now green steel over the past year, despite billions in government subsidies (as I've previously reported).

So, as I said at the outset, I don't think one small reduction in interest rates for mortgage holders will have much of a rebound effect for Labor in the polls, however welcome it might be for struggling families.

Many still find home ownership out of reach and that is also unlikely to change, but perhaps today's potential buyers set their initial goals too high. Forget the four-bedroom, double garage and pool and start small.

Speaking from experience, when my wife and I were first married back in the '60s we bought a one-bedroom fibro beach shack at Bargara with a mortgage rate of about six percent.

It was on a big block which we subdivided and sold, then added an extra room to the shack before we sold that too. My wife, a young nurse with an inherent interest in real estate, sketched plans for a trendy V- shaped brick veneer and we obtained a co-operative builder who let me do all the painting as the build progressed, before I went off to cover the news as a young reporter on night shift.

That was the start of a progression of home and investment properties over the years, including during Labor PM Paul Keating's "recession we had to have" which saw mortgage rates peak at 17 percent.

When our sons moved to Brisbane for University and work around that time, we bought a small inner-city unit which had a public pool, major shopping centre, bus stop and train station all within a few hundred metres. There was also a credit squeeze (thanks Paul) and I had to take out two mortgages, but when we sold it a few years later to upgrade to a more roomy house, we doubled our money.

Former Liberal PM Malcol Fraser once said, "Life isn't meant to be easy…" But to complete the George Bernard Shaw quote " … take courage: it can be delightful."

Or as Archie Roach sang, From Little Things, Big Things Grow.