WEBVTT - When will interest rates come down?

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<v Speaker 1>Already and this is the daily This is the daily.

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<v Speaker 1>Ohs oh, now it makes sense. Good morning and welcome

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<v Speaker 1>to the Daily Ours. It's Wednesday, the twenty fifth of September.

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<v Speaker 1>I'm Harry, I'm zara. It costs a lot to borrow

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<v Speaker 1>money in Australia at the moment because of high interest rates.

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<v Speaker 1>The Greens are pressing the government to force the Reserve

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<v Speaker 1>Bank to cut the official cash rate target in exchange

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<v Speaker 1>for their support on laws to reform the bank. In

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<v Speaker 1>today's health check on the Australian Economy, we look at

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<v Speaker 1>whether the government can actually force interest rates to come down,

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<v Speaker 1>why the Greens are demanding it, and when we can

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<v Speaker 1>expect borrowing costs to come down Before Sarah. What's making headlines.

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<v Speaker 2>The federal government has reiterated calls for Australians in Lebanon

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<v Speaker 2>to leave the region while commercial flights are still available.

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<v Speaker 2>It comes amid escalating tensions between Israel and Hezbollah after

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<v Speaker 2>Israeli airstrikes killed around five hundred people on Monday. During

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<v Speaker 2>an address at the UN in New York, Foreign Affairs

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<v Speaker 2>Minister Penny Wong said Australia was doing what it could

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<v Speaker 2>to quote prepare contingency arrangements, but one the very large

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<v Speaker 2>number of Australians in Lebanon that it was quote beyond

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<v Speaker 2>the capacity of the government to provide assistance to All.

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<v Speaker 2>Australians have been advised not to travel to Lebanon since

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<v Speaker 2>October last year. Speaking in Wa yesterday, the PM echoed

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<v Speaker 2>Wong's calls and said people continuing to travel from Australia

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<v Speaker 2>to Lebanon in recent months was quote not a common

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<v Speaker 2>sense thing to do. The Government issues these warnings for

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<v Speaker 2>a reason.

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<v Speaker 1>After Pay has announced it will introduce spending caps for users.

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<v Speaker 1>The Australian founded by now Pay Later companies said the

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<v Speaker 1>feature is a self imposed maximum limit on the total

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<v Speaker 1>amount you can spend with after Pay. It's expected to

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<v Speaker 1>be rolled out in November. However, the opt in limit

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<v Speaker 1>can be turned off at any time. The spending cap

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<v Speaker 1>will be separate to limits on how much a user

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<v Speaker 1>is approved to spend on online shopping based on their

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<v Speaker 1>shopping history. It comes after the government introduced draft legislation

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<v Speaker 1>to regulate by now pay Later services in June. The

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<v Speaker 1>bill is aimed at protecting users from accumulating debt via

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<v Speaker 1>services like after Pay.

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<v Speaker 2>A Federal court in Argentina has ordered the immediate arrest

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<v Speaker 2>of Venezuela's President, Nicholas Maduro over alleged human rights violations.

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<v Speaker 2>It follows an arrest warrant from the Venezuelan Supreme Court

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<v Speaker 2>against Argentina's President, Haavia Milay. The country has accused the

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<v Speaker 2>Venezuelan leader of organizing the kidnapping and torture of its citizens.

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<v Speaker 2>It also issued a warrant for the arrest of Maduro's

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<v Speaker 2>interior minister. Venezuela has faced increasing unrest since a presidential

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<v Speaker 2>election in July in which Maduro's government insisted it. Opposition

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<v Speaker 2>leader at Mundo Gonzalez declared victory, but has fled to

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<v Speaker 2>Spain after Maduro ordered his arrest.

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<v Speaker 1>And Today's good News. Scientists have discovered evidence of several

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<v Speaker 1>heat resistance coral colonies on the Great Barrier reef, showing

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<v Speaker 1>some corals are better equipped to cope with rising sea

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<v Speaker 1>temperatures than previously thought. Like when we use sunscreen to

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<v Speaker 1>avoid being sunburned, corals that have adapted to withstand higher

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<v Speaker 1>temperatures are more likely to avoid being bleached. Researchers from

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<v Speaker 1>Southern Cross University tested over five hundred colonies across seventeen

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<v Speaker 1>locations along the Great Barrier Reef. The study's lead author,

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<v Speaker 1>Melissa Nagels, said the team had found heat tolerant corals

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<v Speaker 1>at almost all the reefs studied, highlighting how corals across

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<v Speaker 1>the entire Great Barrier Reef may hold the key to

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<v Speaker 1>protecting and restoring the reef. It's hoped that discovery will

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<v Speaker 1>help scientists understand coral recovery and learn more about different

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<v Speaker 1>strategies to protect reefs from climate change.

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<v Speaker 2>So, Harry, when you set up this story in the

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<v Speaker 2>intro of this podcast, it struck me that there are

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<v Speaker 2>so many different terms and so many different stakeholders. I

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<v Speaker 2>guess we'll call them in this story that I think

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<v Speaker 2>it's going to be a bit of a confusing one,

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<v Speaker 2>but it's important and I think that you know, it

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<v Speaker 2>has really far reaching consequences, not just for the economy

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<v Speaker 2>but for politics and kind of everything. But I think

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<v Speaker 2>we should start at the beginning. One of the main

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<v Speaker 2>players in this story is the Reserve Bank of Australia.

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<v Speaker 2>So if people aren't familiar with the RBA, what do

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<v Speaker 2>they need to know?

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<v Speaker 1>Well, the RBA is my leading cast member. If we're

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<v Speaker 1>talking about these sets of actors and a kid kid Sarah. So,

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<v Speaker 1>the Reserve Bank is Australia's central bank, which sets the

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<v Speaker 1>official cash rate target. It's independent from the government, doesn't

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<v Speaker 1>make political decisions, and it's Australia's vital economic organ if

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<v Speaker 1>you'd like to imagine it in that way. It keeps

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<v Speaker 1>the blood pumping in the economy.

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<v Speaker 3>But it's not a commercial bank.

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<v Speaker 1>No, but it does set interest rates for the commercial banks,

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<v Speaker 1>So think CommBank, NAB, Westpac. They all borrow from the

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<v Speaker 1>Reserve Bank. So think of the Reserve Bank as like

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<v Speaker 1>the big bank. Yeah, and then the commercial banks is

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<v Speaker 1>the ones who are relying on the RBA to set

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<v Speaker 1>their own interest rates. So then how it works is

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<v Speaker 1>it all sort of flows through to the consumer or

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<v Speaker 1>to someone who's trying to get out a loan from

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<v Speaker 1>the bank. Their interest rates on whatever loan they have

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<v Speaker 1>or whatever the deposit they put into their account is

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<v Speaker 1>set by the commercial banks, but that in turn is

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<v Speaker 1>dependent on the RBA. So do you see how it

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<v Speaker 1>all sort of trickles down and flows through.

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<v Speaker 2>Yes, It's one of those times I wish that this

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<v Speaker 2>podcast was actually in written forms so that you could

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<v Speaker 2>draw something for someone. But you're saying there that you know,

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<v Speaker 2>the RBA sets the interest rate and then the commercial

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<v Speaker 2>banks passed that on to consumers like yours.

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<v Speaker 1>That's correct, yes, So, as I mentioned, the main thing

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<v Speaker 1>that the Reserve Bank does is set the official cash

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<v Speaker 1>rate target, which is what which is how we understand

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<v Speaker 1>interest rates, so the cost of borrowing money effectively. And

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<v Speaker 1>so when COVID hit Australia in early twenty twenty, there

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<v Speaker 1>was so much uncertainty about what would happen to the

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<v Speaker 1>economy at the time, so the Reserve Bank took a

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<v Speaker 1>major decision to drop interest rates to a record low

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<v Speaker 1>of zero point one percent. So that's a pretty cheap

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<v Speaker 1>borrowing rate for money. And that was because millions of

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<v Speaker 1>people's jobs were at stake. It was a little unclear

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<v Speaker 1>what was going to happen economically speaking in Australia, and

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<v Speaker 1>so that is why the Reserve Bank kept interest rates

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<v Speaker 1>so low for so long. That was until May twenty

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<v Speaker 1>twenty two when the RBA decided to lift rates again.

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<v Speaker 1>But Zara, it hasn't been a gradual rise ever since then.

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<v Speaker 1>There were ten back to back increases to interest rates

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<v Speaker 1>set it either twenty five basis points or fifty bases points.

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<v Speaker 1>And then on top of that, there was some other

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<v Speaker 1>interest rates hiked since then, and that takes us to today,

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<v Speaker 1>where the interest rate is at four point three five percent.

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<v Speaker 1>And you might wonder, why did the RBA go from

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<v Speaker 1>point one to four point three to five in such

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<v Speaker 1>a short amount of time. Why did they go so

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<v Speaker 1>full steam ahead? And there's one word that you need

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<v Speaker 1>to know. It's inflation.

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<v Speaker 2>I love when you ask a rhetorical question and then

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<v Speaker 2>answer it yourself.

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<v Speaker 1>Well, I'm just so keen to talk about inflation. I

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<v Speaker 1>have to get in there.

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<v Speaker 2>Okay, So wait, just to recap, So May twenty twenty two,

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<v Speaker 2>interest rates were incredibly low. From that period of time onwards,

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<v Speaker 2>interest rates have increased quite rapidly. They've been on hold

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<v Speaker 2>for a while now, but they've been at a really

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<v Speaker 2>high level.

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<v Speaker 3>And that's because of inflation.

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<v Speaker 1>Yeah, and that's because inflation has been sticking around for

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<v Speaker 1>quite a while. And so just to recap. Inflation measures

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<v Speaker 1>the pace at which prices are rising in the economy,

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<v Speaker 1>and the RBA's central job is to manage price stability,

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<v Speaker 1>so they're always keeping an eye on inflation. And it's

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<v Speaker 1>been high over the past few years, and the RBA

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<v Speaker 1>has been using interest rate rises as it's what's commonly

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<v Speaker 1>referred to as a blunt tool to address inflation and

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<v Speaker 1>bring it back down to the two to three percent range,

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<v Speaker 1>because at its peak in twenty twenty two, inflation hit

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<v Speaker 1>seven point eight percent as an annual rate, and it's

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<v Speaker 1>slowly come down and it's currently bobbing along at about

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<v Speaker 1>three point eight percent.

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<v Speaker 2>Okay, And so from there you can tell that inflation

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<v Speaker 2>has been coming down, but interest rates have remained the same, right.

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<v Speaker 1>That's right, And I think some people are just really

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<v Speaker 1>hoping that the rates will change sometime soon. But yesterday

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<v Speaker 1>the RBA chose to keep interest rates of four point

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<v Speaker 1>three five percent, and it's been at that rate since

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<v Speaker 1>November last year, yep. And having interest rates stay so

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<v Speaker 1>high for so long makes things a bit tough economically speaking,

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<v Speaker 1>because by design, it's meant to discourage extra spending. And

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<v Speaker 1>so the group of people that is most affected by

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<v Speaker 1>a high interest rate is homeowners paying off their mortgage.

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<v Speaker 1>And the RBA Governor Michelle Bullock actually recently suggested home

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<v Speaker 1>loans are just so expensive at the moment because of

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<v Speaker 1>high interest rates that some people might actually have to

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<v Speaker 1>consider giving up their property and some may ultimately have

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<v Speaker 1>to make the very difficult choice to sell their home.

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<v Speaker 1>And so as always, we're playing the waiting game to

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<v Speaker 1>see when the RBA will choose to cut interest rates.

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<v Speaker 2>Okay, and so this waiting game is one that you know,

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<v Speaker 2>Australians have become very accustomed to. It's that we wait

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<v Speaker 2>like it's a COVID press conference for you know, the

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<v Speaker 2>RBA's decision. But then this week there was a concept

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<v Speaker 2>thrown around by the Greens that perhaps it's not not

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<v Speaker 2>just the RBA who can make these decisions, and that

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<v Speaker 2>perhaps someone.

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<v Speaker 1>Else can well enter my second character, the government, because

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<v Speaker 1>the Greens were throwing out this idea that the government

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<v Speaker 1>could actually do something about interest rates if it wanted

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<v Speaker 1>to itself. So the Greens's Economic Justice spokesperson, Senator Nick

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<v Speaker 1>McKim pretty much said to Treasurer Jim Chalmers, hey, you

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<v Speaker 1>could actually reduce interest rates if you wanted to. Jim. Now,

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<v Speaker 1>Nick McKim is one hundred percent right. There is actually

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<v Speaker 1>a special power in the RBA Act, which is the

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<v Speaker 1>Lord's governing the way the Reserve Bank functions, which actually

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<v Speaker 1>gives the government of the day the legal authority to

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<v Speaker 1>force the RBA to change the official cash rate target,

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<v Speaker 1>but it's never been Uszara.

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<v Speaker 2>I think it's such an interesting story, this idea that

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<v Speaker 2>the Greens are saying to the government, no, you should

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<v Speaker 2>be doing something about this, and then the government in return,

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<v Speaker 2>I guess, you know, not least the last couple of months,

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<v Speaker 2>has been saying no, this is the RBA's decision, wholly

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<v Speaker 2>independent from one another, and it leads to this very

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<v Speaker 2>complex kind of political web.

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<v Speaker 1>Absolutely, and journalists put this to the government this week

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<v Speaker 1>said will you actually go with what the Greens are

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<v Speaker 1>suggesting and cut interest rates as a very extraordinary move

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<v Speaker 1>and something that hasn't been done since the RBA was

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<v Speaker 1>a fully independent body since nineteen sixty And on this

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<v Speaker 1>question Finance Minister Katie Gallaher responded and she gave a

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<v Speaker 1>pretty clear answer.

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<v Speaker 4>Well, I just think the Greens are out of control

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<v Speaker 4>at the moment, full of self importance and out seeking

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<v Speaker 4>populist approach to everything, and it's crazy what they're saying

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<v Speaker 4>to us. So if that's their ultimatum, and you know,

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<v Speaker 4>it's a bit unseemly. Nick McKim going around issuing ultimatums.

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<v Speaker 4>You know, no, we won't work with that.

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<v Speaker 1>It was a flat out no. That's because the Treasurer

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<v Speaker 1>has been asserting the independence of the Reserve Bank from

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<v Speaker 1>government decisions, because in his view, these worlds shouldn't collide.

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<v Speaker 1>The Greens were throwing out this idea though, because they

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<v Speaker 1>wanted to put it as a condition for their support

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<v Speaker 1>to pass legislative reforms to the RBA through Parliament, because

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<v Speaker 1>as it stands, it's currently stuck in the Senate and

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<v Speaker 1>the Greens have the numbers to potentially get it over

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<v Speaker 1>the line. But the Greens were saying they won't agree

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<v Speaker 1>to it unless interest rates come down.

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<v Speaker 2>I feel like this story couldn't have gotten more complex

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<v Speaker 2>if we tried, and somehow we've just added another layer.

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<v Speaker 2>So we're saying here, the Greens have had this idea

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<v Speaker 2>and they've said the government must do xyz otherwise we

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<v Speaker 2>will not support your legislation that's actually about the RBA

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<v Speaker 2>in the first place, and the government needs the Greens

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<v Speaker 2>support in order.

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<v Speaker 3>To pass that.

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<v Speaker 2>Right.

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<v Speaker 1>That's right, And there's been some questions on whether the

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<v Speaker 1>government's just going to have to shelve this legislation now,

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<v Speaker 1>whether it's just going to have to keep it on

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<v Speaker 1>the back burner until it can get some more support

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<v Speaker 1>later down the track. But it does seem like since

0:13:03.600 --> 0:13:06.040
<v Speaker 1>the government's saying no, we're not going to break all

0:13:06.160 --> 0:13:09.640
<v Speaker 1>orthodoxy and cut interest rates just because the Greens are

0:13:09.679 --> 0:13:11.959
<v Speaker 1>asking us to, we're going to be on the edge

0:13:11.960 --> 0:13:13.640
<v Speaker 1>of our seats for a little bit longer waiting for

0:13:13.679 --> 0:13:16.800
<v Speaker 1>the RBA to make the decision to bring interest rates down.

0:13:17.080 --> 0:13:20.439
<v Speaker 3>Do we have any idea of when that could be, Well.

0:13:20.160 --> 0:13:22.400
<v Speaker 1>We do have some tea leaves that we can read

0:13:22.400 --> 0:13:25.360
<v Speaker 1>together to guess what will happen in the future. That's

0:13:25.400 --> 0:13:28.160
<v Speaker 1>the beauty of the economy. A lot of it is

0:13:28.200 --> 0:13:32.840
<v Speaker 1>based on projections and estimations. So overseas, the US Federal

0:13:32.880 --> 0:13:36.720
<v Speaker 1>Reserve reduced its cash rate target last week, taking the

0:13:36.920 --> 0:13:40.720
<v Speaker 1>rate down to about four point nine percent, because inflation

0:13:41.000 --> 0:13:44.520
<v Speaker 1>over in the US is dropping, so the central bank

0:13:44.640 --> 0:13:48.080
<v Speaker 1>decided that it was time to bring interest rates down

0:13:48.120 --> 0:13:50.280
<v Speaker 1>as well, and that was the first time that had

0:13:50.320 --> 0:13:53.960
<v Speaker 1>happened since COVID nineteen. It's also happened in the UK,

0:13:54.240 --> 0:13:58.440
<v Speaker 1>it's happened in Europe, and naturally we want to think, well,

0:13:58.440 --> 0:14:00.320
<v Speaker 1>when is it going to happen in Australia is going

0:14:00.400 --> 0:14:03.840
<v Speaker 1>to happen, you know, anytime soon. Australia is a little

0:14:03.840 --> 0:14:07.240
<v Speaker 1>bit different in two respects to those other economies. First

0:14:07.240 --> 0:14:10.720
<v Speaker 1>of all, interest rates and inflation were higher in those

0:14:10.760 --> 0:14:14.920
<v Speaker 1>places compared to Australia, and inflation peaked earlier than it

0:14:14.960 --> 0:14:18.280
<v Speaker 1>did in Australia. So naturally, if the same cycle were

0:14:18.320 --> 0:14:20.960
<v Speaker 1>to apply here, we'd have to wait a little bit longer.

0:14:21.840 --> 0:14:25.120
<v Speaker 1>The RBA Governor Michelle Bullock also told a press conference

0:14:25.200 --> 0:14:28.880
<v Speaker 1>earlier this year it would be quote premature to expect

0:14:28.880 --> 0:14:32.160
<v Speaker 1>an interest rate cut by the end of twenty twenty

0:14:32.240 --> 0:14:35.960
<v Speaker 1>four unless there are some economic changes that are very

0:14:36.000 --> 0:14:39.560
<v Speaker 1>significant that would mandatea cut. So you know, pray tell

0:14:39.640 --> 0:14:42.760
<v Speaker 1>we don't have another pandemic. But that was a situation

0:14:43.320 --> 0:14:46.960
<v Speaker 1>that nobody could have predicted, and the Reserve Bank responded

0:14:46.960 --> 0:14:49.560
<v Speaker 1>by cutting interest rates to an all time low.

0:14:49.800 --> 0:14:51.560
<v Speaker 3>So what does that mean then for us? We just

0:14:51.680 --> 0:14:52.480
<v Speaker 3>sit back and wait.

0:14:53.160 --> 0:14:55.840
<v Speaker 1>As I said earlier, the main thing the RBA is

0:14:55.960 --> 0:14:59.640
<v Speaker 1>keeping an eye on is inflation. If inflation sticking around,

0:14:59.680 --> 0:15:02.880
<v Speaker 1>we can expect that interest rates will stay higher for

0:15:03.000 --> 0:15:07.120
<v Speaker 1>a little while longer. But if inflation does start moderating

0:15:07.160 --> 0:15:10.640
<v Speaker 1>a bit, and we see unemployment potentially rise as well.

0:15:10.640 --> 0:15:14.240
<v Speaker 1>These are two big factors that weigh on the RBA's mind.

0:15:14.800 --> 0:15:17.640
<v Speaker 1>Then the nine members of the board who are deliberating

0:15:17.720 --> 0:15:21.520
<v Speaker 1>on interest rates might choose to act on interest rates

0:15:21.520 --> 0:15:25.600
<v Speaker 1>and bring them down if that's occurring. For now, economists

0:15:25.640 --> 0:15:28.400
<v Speaker 1>and banks are broadly expecting that there will be a

0:15:28.480 --> 0:15:30.600
<v Speaker 1>rate cut by early next year.

0:15:30.680 --> 0:15:30.920
<v Speaker 3>Yep.

0:15:31.480 --> 0:15:34.040
<v Speaker 1>And even though they do have the power to make

0:15:34.080 --> 0:15:37.880
<v Speaker 1>it happen. My second character, the government really wants an

0:15:38.040 --> 0:15:41.120
<v Speaker 1>early Christmas present in the form of an interest rate

0:15:41.200 --> 0:15:45.200
<v Speaker 1>cut from the RBA. And the question now is will

0:15:45.200 --> 0:15:47.320
<v Speaker 1>the RBA wrap it up in the nice little boat

0:15:47.400 --> 0:15:49.760
<v Speaker 1>and deliver it to them by December.

0:15:50.440 --> 0:15:52.840
<v Speaker 2>It's so interesting and I think, you know, ending on

0:15:52.880 --> 0:15:56.360
<v Speaker 2>that note just shows even though the two are independent

0:15:56.400 --> 0:15:58.600
<v Speaker 2>from one another, the RBA and the government, the government

0:15:58.640 --> 0:16:01.440
<v Speaker 2>is ultimately held to a cat for the decisions of

0:16:01.640 --> 0:16:04.480
<v Speaker 2>the RBA. And you know, cost of living and the

0:16:04.520 --> 0:16:08.680
<v Speaker 2>feeling that homeowners, especially our feeling right now the squeeze

0:16:09.240 --> 0:16:11.800
<v Speaker 2>might be taken out on the government at the next election,

0:16:12.000 --> 0:16:14.400
<v Speaker 2>so they'd be hoping more than anyone that these interest

0:16:14.480 --> 0:16:15.360
<v Speaker 2>rates come down soon.

0:16:15.560 --> 0:16:18.360
<v Speaker 1>And I think that goes back to why Jim Chalmers

0:16:18.440 --> 0:16:21.000
<v Speaker 1>is that such pains to say that the RBA is

0:16:21.040 --> 0:16:24.640
<v Speaker 1>an independent body setting interest rates because I don't think

0:16:24.720 --> 0:16:27.240
<v Speaker 1>Jim Chalmers wants to take the fall for it too much.

0:16:27.280 --> 0:16:29.760
<v Speaker 1>But if he's able to keep them at arm's length

0:16:29.800 --> 0:16:33.480
<v Speaker 1>and say no, it's this independent economic body that is

0:16:33.520 --> 0:16:37.240
<v Speaker 1>setting the interest rate decisions, not me, then there is

0:16:37.240 --> 0:16:40.040
<v Speaker 1>a bit of distance between that decision and what a

0:16:40.080 --> 0:16:41.960
<v Speaker 1>government is doing to address inflation.

0:16:42.480 --> 0:16:45.800
<v Speaker 2>It's absolutely fascinating, Harry. Thank you for explaining that, and

0:16:45.920 --> 0:16:48.160
<v Speaker 2>thank you for joining us for another episode of The

0:16:48.240 --> 0:16:51.160
<v Speaker 2>Daily Oz. If you are listening to this on Spotify

0:16:51.240 --> 0:16:53.320
<v Speaker 2>or Apple, we would love you to hit follow, and

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<v Speaker 2>to subscribe. We'll be back for another episode tomorrow, but

0:16:59.560 --> 0:17:00.800
<v Speaker 2>until they have a great day.

0:17:03.600 --> 0:17:05.919
<v Speaker 1>My name is Lily Maddon and I'm a proud Arunda

0:17:06.119 --> 0:17:08.720
<v Speaker 1>Bunjelung Calcuttin woman from Gadighl Country.

0:17:09.520 --> 0:17:12.679
<v Speaker 4>The Daily oz acknowledges that this podcast is recorded on

0:17:12.720 --> 0:17:15.199
<v Speaker 4>the lands of the Gadighl people and pays respect to

0:17:15.280 --> 0:17:18.600
<v Speaker 4>all Aboriginal and torrest Rate island and nations. We pay

0:17:18.600 --> 0:17:21.560
<v Speaker 4>our respects to the first peoples of these countries, both

0:17:21.600 --> 0:17:22.479
<v Speaker 4>past and present,