Speaker 1: Already and this is the daily This is the daily.
Speaker 1: Ohs oh, now it makes sense. Good morning and welcome
Speaker 1: to the Daily Ours. It's Wednesday, the twenty fifth of September.
Speaker 1: I'm Harry, I'm zara. It costs a lot to borrow
Speaker 1: money in Australia at the moment because of high interest rates.
Speaker 1: The Greens are pressing the government to force the Reserve
Speaker 1: Bank to cut the official cash rate target in exchange
Speaker 1: for their support on laws to reform the bank. In
Speaker 1: today's health check on the Australian Economy, we look at
Speaker 1: whether the government can actually force interest rates to come down,
Speaker 1: why the Greens are demanding it, and when we can
Speaker 1: expect borrowing costs to come down Before Sarah. What's making headlines.
Speaker 2: The federal government has reiterated calls for Australians in Lebanon
Speaker 2: to leave the region while commercial flights are still available.
Speaker 2: It comes amid escalating tensions between Israel and Hezbollah after
Speaker 2: Israeli airstrikes killed around five hundred people on Monday. During
Speaker 2: an address at the UN in New York, Foreign Affairs
Speaker 2: Minister Penny Wong said Australia was doing what it could
Speaker 2: to quote prepare contingency arrangements, but one the very large
Speaker 2: number of Australians in Lebanon that it was quote beyond
Speaker 2: the capacity of the government to provide assistance to All.
Speaker 2: Australians have been advised not to travel to Lebanon since
Speaker 2: October last year. Speaking in Wa yesterday, the PM echoed
Speaker 2: Wong's calls and said people continuing to travel from Australia
Speaker 2: to Lebanon in recent months was quote not a common
Speaker 2: sense thing to do. The Government issues these warnings for
Speaker 2: a reason.
Speaker 1: After Pay has announced it will introduce spending caps for users.
Speaker 1: The Australian founded by now Pay Later companies said the
Speaker 1: feature is a self imposed maximum limit on the total
Speaker 1: amount you can spend with after Pay. It's expected to
Speaker 1: be rolled out in November. However, the opt in limit
Speaker 1: can be turned off at any time. The spending cap
Speaker 1: will be separate to limits on how much a user
Speaker 1: is approved to spend on online shopping based on their
Speaker 1: shopping history. It comes after the government introduced draft legislation
Speaker 1: to regulate by now pay Later services in June. The
Speaker 1: bill is aimed at protecting users from accumulating debt via
Speaker 1: services like after Pay.
Speaker 2: A Federal court in Argentina has ordered the immediate arrest
Speaker 2: of Venezuela's President, Nicholas Maduro over alleged human rights violations.
Speaker 2: It follows an arrest warrant from the Venezuelan Supreme Court
Speaker 2: against Argentina's President, Haavia Milay. The country has accused the
Speaker 2: Venezuelan leader of organizing the kidnapping and torture of its citizens.
Speaker 2: It also issued a warrant for the arrest of Maduro's
Speaker 2: interior minister. Venezuela has faced increasing unrest since a presidential
Speaker 2: election in July in which Maduro's government insisted it. Opposition
Speaker 2: leader at Mundo Gonzalez declared victory, but has fled to
Speaker 2: Spain after Maduro ordered his arrest.
Speaker 1: And Today's good News. Scientists have discovered evidence of several
Speaker 1: heat resistance coral colonies on the Great Barrier reef, showing
Speaker 1: some corals are better equipped to cope with rising sea
Speaker 1: temperatures than previously thought. Like when we use sunscreen to
Speaker 1: avoid being sunburned, corals that have adapted to withstand higher
Speaker 1: temperatures are more likely to avoid being bleached. Researchers from
Speaker 1: Southern Cross University tested over five hundred colonies across seventeen
Speaker 1: locations along the Great Barrier Reef. The study's lead author,
Speaker 1: Melissa Nagels, said the team had found heat tolerant corals
Speaker 1: at almost all the reefs studied, highlighting how corals across
Speaker 1: the entire Great Barrier Reef may hold the key to
Speaker 1: protecting and restoring the reef. It's hoped that discovery will
Speaker 1: help scientists understand coral recovery and learn more about different
Speaker 1: strategies to protect reefs from climate change.
Speaker 2: So, Harry, when you set up this story in the
Speaker 2: intro of this podcast, it struck me that there are
Speaker 2: so many different terms and so many different stakeholders. I
Speaker 2: guess we'll call them in this story that I think
Speaker 2: it's going to be a bit of a confusing one,
Speaker 2: but it's important and I think that you know, it
Speaker 2: has really far reaching consequences, not just for the economy
Speaker 2: but for politics and kind of everything. But I think
Speaker 2: we should start at the beginning. One of the main
Speaker 2: players in this story is the Reserve Bank of Australia.
Speaker 2: So if people aren't familiar with the RBA, what do
Speaker 2: they need to know?
Speaker 1: Well, the RBA is my leading cast member. If we're
Speaker 1: talking about these sets of actors and a kid kid Sarah. So,
Speaker 1: the Reserve Bank is Australia's central bank, which sets the
Speaker 1: official cash rate target. It's independent from the government, doesn't
Speaker 1: make political decisions, and it's Australia's vital economic organ if
Speaker 1: you'd like to imagine it in that way. It keeps
Speaker 1: the blood pumping in the economy.
Speaker 3: But it's not a commercial bank.
Speaker 1: No, but it does set interest rates for the commercial banks,
Speaker 1: So think CommBank, NAB, Westpac. They all borrow from the
Speaker 1: Reserve Bank. So think of the Reserve Bank as like
Speaker 1: the big bank. Yeah, and then the commercial banks is
Speaker 1: the ones who are relying on the RBA to set
Speaker 1: their own interest rates. So then how it works is
Speaker 1: it all sort of flows through to the consumer or
Speaker 1: to someone who's trying to get out a loan from
Speaker 1: the bank. Their interest rates on whatever loan they have
Speaker 1: or whatever the deposit they put into their account is
Speaker 1: set by the commercial banks, but that in turn is
Speaker 1: dependent on the RBA. So do you see how it
Speaker 1: all sort of trickles down and flows through.
Speaker 2: Yes, It's one of those times I wish that this
Speaker 2: podcast was actually in written forms so that you could
Speaker 2: draw something for someone. But you're saying there that you know,
Speaker 2: the RBA sets the interest rate and then the commercial
Speaker 2: banks passed that on to consumers like yours.
Speaker 1: That's correct, yes, So, as I mentioned, the main thing
Speaker 1: that the Reserve Bank does is set the official cash
Speaker 1: rate target, which is what which is how we understand
Speaker 1: interest rates, so the cost of borrowing money effectively. And
Speaker 1: so when COVID hit Australia in early twenty twenty, there
Speaker 1: was so much uncertainty about what would happen to the
Speaker 1: economy at the time, so the Reserve Bank took a
Speaker 1: major decision to drop interest rates to a record low
Speaker 1: of zero point one percent. So that's a pretty cheap
Speaker 1: borrowing rate for money. And that was because millions of
Speaker 1: people's jobs were at stake. It was a little unclear
Speaker 1: what was going to happen economically speaking in Australia, and
Speaker 1: so that is why the Reserve Bank kept interest rates
Speaker 1: so low for so long. That was until May twenty
Speaker 1: twenty two when the RBA decided to lift rates again.
Speaker 1: But Zara, it hasn't been a gradual rise ever since then.
Speaker 1: There were ten back to back increases to interest rates
Speaker 1: set it either twenty five basis points or fifty bases points.
Speaker 1: And then on top of that, there was some other
Speaker 1: interest rates hiked since then, and that takes us to today,
Speaker 1: where the interest rate is at four point three five percent.
Speaker 1: And you might wonder, why did the RBA go from
Speaker 1: point one to four point three to five in such
Speaker 1: a short amount of time. Why did they go so
Speaker 1: full steam ahead? And there's one word that you need
Speaker 1: to know. It's inflation.
Speaker 2: I love when you ask a rhetorical question and then
Speaker 2: answer it yourself.
Speaker 1: Well, I'm just so keen to talk about inflation. I
Speaker 1: have to get in there.
Speaker 2: Okay, So wait, just to recap, So May twenty twenty two,
Speaker 2: interest rates were incredibly low. From that period of time onwards,
Speaker 2: interest rates have increased quite rapidly. They've been on hold
Speaker 2: for a while now, but they've been at a really
Speaker 2: high level.
Speaker 3: And that's because of inflation.
Speaker 1: Yeah, and that's because inflation has been sticking around for
Speaker 1: quite a while. And so just to recap. Inflation measures
Speaker 1: the pace at which prices are rising in the economy,
Speaker 1: and the RBA's central job is to manage price stability,
Speaker 1: so they're always keeping an eye on inflation. And it's
Speaker 1: been high over the past few years, and the RBA
Speaker 1: has been using interest rate rises as it's what's commonly
Speaker 1: referred to as a blunt tool to address inflation and
Speaker 1: bring it back down to the two to three percent range,
Speaker 1: because at its peak in twenty twenty two, inflation hit
Speaker 1: seven point eight percent as an annual rate, and it's
Speaker 1: slowly come down and it's currently bobbing along at about
Speaker 1: three point eight percent.
Speaker 2: Okay, And so from there you can tell that inflation
Speaker 2: has been coming down, but interest rates have remained the same, right.
Speaker 1: That's right, And I think some people are just really
Speaker 1: hoping that the rates will change sometime soon. But yesterday
Speaker 1: the RBA chose to keep interest rates of four point
Speaker 1: three five percent, and it's been at that rate since
Speaker 1: November last year, yep. And having interest rates stay so
Speaker 1: high for so long makes things a bit tough economically speaking,
Speaker 1: because by design, it's meant to discourage extra spending. And
Speaker 1: so the group of people that is most affected by
Speaker 1: a high interest rate is homeowners paying off their mortgage.
Speaker 1: And the RBA Governor Michelle Bullock actually recently suggested home
Speaker 1: loans are just so expensive at the moment because of
Speaker 1: high interest rates that some people might actually have to
Speaker 1: consider giving up their property and some may ultimately have
Speaker 1: to make the very difficult choice to sell their home.
Speaker 1: And so as always, we're playing the waiting game to
Speaker 1: see when the RBA will choose to cut interest rates.
Speaker 2: Okay, and so this waiting game is one that you know,
Speaker 2: Australians have become very accustomed to. It's that we wait
Speaker 2: like it's a COVID press conference for you know, the
Speaker 2: RBA's decision. But then this week there was a concept
Speaker 2: thrown around by the Greens that perhaps it's not not
Speaker 2: just the RBA who can make these decisions, and that
Speaker 2: perhaps someone.
Speaker 1: Else can well enter my second character, the government, because
Speaker 1: the Greens were throwing out this idea that the government
Speaker 1: could actually do something about interest rates if it wanted
Speaker 1: to itself. So the Greens's Economic Justice spokesperson, Senator Nick
Speaker 1: McKim pretty much said to Treasurer Jim Chalmers, hey, you
Speaker 1: could actually reduce interest rates if you wanted to. Jim. Now,
Speaker 1: Nick McKim is one hundred percent right. There is actually
Speaker 1: a special power in the RBA Act, which is the
Speaker 1: Lord's governing the way the Reserve Bank functions, which actually
Speaker 1: gives the government of the day the legal authority to
Speaker 1: force the RBA to change the official cash rate target,
Speaker 1: but it's never been Uszara.
Speaker 2: I think it's such an interesting story, this idea that
Speaker 2: the Greens are saying to the government, no, you should
Speaker 2: be doing something about this, and then the government in return,
Speaker 2: I guess, you know, not least the last couple of months,
Speaker 2: has been saying no, this is the RBA's decision, wholly
Speaker 2: independent from one another, and it leads to this very
Speaker 2: complex kind of political web.
Speaker 1: Absolutely, and journalists put this to the government this week
Speaker 1: said will you actually go with what the Greens are
Speaker 1: suggesting and cut interest rates as a very extraordinary move
Speaker 1: and something that hasn't been done since the RBA was
Speaker 1: a fully independent body since nineteen sixty And on this
Speaker 1: question Finance Minister Katie Gallaher responded and she gave a
Speaker 1: pretty clear answer.
Speaker 4: Well, I just think the Greens are out of control
Speaker 4: at the moment, full of self importance and out seeking
Speaker 4: populist approach to everything, and it's crazy what they're saying
Speaker 4: to us. So if that's their ultimatum, and you know,
Speaker 4: it's a bit unseemly. Nick McKim going around issuing ultimatums.
Speaker 4: You know, no, we won't work with that.
Speaker 1: It was a flat out no. That's because the Treasurer
Speaker 1: has been asserting the independence of the Reserve Bank from
Speaker 1: government decisions, because in his view, these worlds shouldn't collide.
Speaker 1: The Greens were throwing out this idea though, because they
Speaker 1: wanted to put it as a condition for their support
Speaker 1: to pass legislative reforms to the RBA through Parliament, because
Speaker 1: as it stands, it's currently stuck in the Senate and
Speaker 1: the Greens have the numbers to potentially get it over
Speaker 1: the line. But the Greens were saying they won't agree
Speaker 1: to it unless interest rates come down.
Speaker 2: I feel like this story couldn't have gotten more complex
Speaker 2: if we tried, and somehow we've just added another layer.
Speaker 2: So we're saying here, the Greens have had this idea
Speaker 2: and they've said the government must do xyz otherwise we
Speaker 2: will not support your legislation that's actually about the RBA
Speaker 2: in the first place, and the government needs the Greens
Speaker 2: support in order.
Speaker 3: To pass that.
Speaker 2: Right.
Speaker 1: That's right, And there's been some questions on whether the
Speaker 1: government's just going to have to shelve this legislation now,
Speaker 1: whether it's just going to have to keep it on
Speaker 1: the back burner until it can get some more support
Speaker 1: later down the track. But it does seem like since
Speaker 1: the government's saying no, we're not going to break all
Speaker 1: orthodoxy and cut interest rates just because the Greens are
Speaker 1: asking us to, we're going to be on the edge
Speaker 1: of our seats for a little bit longer waiting for
Speaker 1: the RBA to make the decision to bring interest rates down.
Speaker 3: Do we have any idea of when that could be, Well.
Speaker 1: We do have some tea leaves that we can read
Speaker 1: together to guess what will happen in the future. That's
Speaker 1: the beauty of the economy. A lot of it is
Speaker 1: based on projections and estimations. So overseas, the US Federal
Speaker 1: Reserve reduced its cash rate target last week, taking the
Speaker 1: rate down to about four point nine percent, because inflation
Speaker 1: over in the US is dropping, so the central bank
Speaker 1: decided that it was time to bring interest rates down
Speaker 1: as well, and that was the first time that had
Speaker 1: happened since COVID nineteen. It's also happened in the UK,
Speaker 1: it's happened in Europe, and naturally we want to think, well,
Speaker 1: when is it going to happen in Australia is going
Speaker 1: to happen, you know, anytime soon. Australia is a little
Speaker 1: bit different in two respects to those other economies. First
Speaker 1: of all, interest rates and inflation were higher in those
Speaker 1: places compared to Australia, and inflation peaked earlier than it
Speaker 1: did in Australia. So naturally, if the same cycle were
Speaker 1: to apply here, we'd have to wait a little bit longer.
Speaker 1: The RBA Governor Michelle Bullock also told a press conference
Speaker 1: earlier this year it would be quote premature to expect
Speaker 1: an interest rate cut by the end of twenty twenty
Speaker 1: four unless there are some economic changes that are very
Speaker 1: significant that would mandatea cut. So you know, pray tell
Speaker 1: we don't have another pandemic. But that was a situation
Speaker 1: that nobody could have predicted, and the Reserve Bank responded
Speaker 1: by cutting interest rates to an all time low.
Speaker 3: So what does that mean then for us? We just
Speaker 3: sit back and wait.
Speaker 1: As I said earlier, the main thing the RBA is
Speaker 1: keeping an eye on is inflation. If inflation sticking around,
Speaker 1: we can expect that interest rates will stay higher for
Speaker 1: a little while longer. But if inflation does start moderating
Speaker 1: a bit, and we see unemployment potentially rise as well.
Speaker 1: These are two big factors that weigh on the RBA's mind.
Speaker 1: Then the nine members of the board who are deliberating
Speaker 1: on interest rates might choose to act on interest rates
Speaker 1: and bring them down if that's occurring. For now, economists
Speaker 1: and banks are broadly expecting that there will be a
Speaker 1: rate cut by early next year.
Speaker 3: Yep.
Speaker 1: And even though they do have the power to make
Speaker 1: it happen. My second character, the government really wants an
Speaker 1: early Christmas present in the form of an interest rate
Speaker 1: cut from the RBA. And the question now is will
Speaker 1: the RBA wrap it up in the nice little boat
Speaker 1: and deliver it to them by December.
Speaker 2: It's so interesting and I think, you know, ending on
Speaker 2: that note just shows even though the two are independent
Speaker 2: from one another, the RBA and the government, the government
Speaker 2: is ultimately held to a cat for the decisions of
Speaker 2: the RBA. And you know, cost of living and the
Speaker 2: feeling that homeowners, especially our feeling right now the squeeze
Speaker 2: might be taken out on the government at the next election,
Speaker 2: so they'd be hoping more than anyone that these interest
Speaker 2: rates come down soon.
Speaker 1: And I think that goes back to why Jim Chalmers
Speaker 1: is that such pains to say that the RBA is
Speaker 1: an independent body setting interest rates because I don't think
Speaker 1: Jim Chalmers wants to take the fall for it too much.
Speaker 1: But if he's able to keep them at arm's length
Speaker 1: and say no, it's this independent economic body that is
Speaker 1: setting the interest rate decisions, not me, then there is
Speaker 1: a bit of distance between that decision and what a
Speaker 1: government is doing to address inflation.
Speaker 2: It's absolutely fascinating, Harry. Thank you for explaining that, and
Speaker 2: thank you for joining us for another episode of The
Speaker 2: Daily Oz. If you are listening to this on Spotify
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Speaker 2: until they have a great day.
Speaker 1: My name is Lily Maddon and I'm a proud Arunda
Speaker 1: Bunjelung Calcuttin woman from Gadighl Country.
Speaker 4: The Daily oz acknowledges that this podcast is recorded on
Speaker 4: the lands of the Gadighl people and pays respect to
Speaker 4: all Aboriginal and torrest Rate island and nations. We pay
Speaker 4: our respects to the first peoples of these countries, both
Speaker 4: past and present,