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- Harvey urges RBA to hold the line
- Big cut ‘could lead to a recession’
Billionaire Gerry Harvey has cautioned the Reserve Bank against a sudden large cut in interest rates, saying it could create a sense of panic that itself would spark a recession.
Many market voices, including that of former RBA governor Bernie Fraser, have urged a half a percentage point cut, either immediately or at the central bank’s scheduled May 19-20 meeting, to bolster an economy amid global financial uncertainty triggered by new US tariffs.
Deutsche Bank on Tuesday forecast a half percentage point cut at the scheduled meeting, while Greens senator Nick McKim joined the chorus of calls for emergency measures before then.
Treasurer Jim Chalmers also hinted at the possibility of half-point cut as he scrambled meetings with RBA governor Michele Bullock and the leaders of the big four banks, as well as the Council of Financial Regulators.
However Mr Harvey argued that cutting rates suddenly, when the RBA had been cautious up until now about reductions for fear of sparking more inflation, would only spook the markets and consumers.
‘I don’t think we should be cutting interest rates just yet,’ he told The Australian.
‘Why would you cut by 50 basis points? We need to keep our powder dry.
‘Losing confidence can spread like wildfire and if that happens we’re in the sh*t and that could lead to a recession.’
Billionaire retailer Mr Harvey (pictured right) argued that performing the slash at an emergency meeting, or on May 19, would only spook consumers
The Harvey Norman chairman said he had noticed a slight fall in sales in recent weeks, but he chalked that up to the normal hesitancy that precedes a federal election.
‘There used to be a reluctance to cut rates but now everyone seems to think it’s the solution.
‘I don’t think there should be any cut at all. The government has to be fiscally responsible.
‘You can’t keep having a situation where you’re spending more than your revenue. They have no dry powder now if we go into a recession.’
ANZ Bank is predicting the RBA will cut rates by 50 basis points in May and go further in July and August.
With February’s relief factored in, home borrowers could have had 100 basis points of rate cuts within six months.
That would take the cash rate back to 3.35 per cent for the first time since March 2023.
Three more cuts by August, on top of February’s relief, would mark the most generous relief in a such short time since 2012 when Australia introduced a carbon tax, and would be comparable to the Global Financial Crisis in 2009.
Consumer confidence has hit a low in the wake of the global market turmoil caused by US President Donald Trump’s tariffs
On Tuesday morning, consumer sentiment data showed confidence had plummeted since Trump imposed his wide-ranging tariffs.
It had fallen 6 per cent in April, according to the Westpac-Melbourne Institute Consumer Sentiment Index.
Oxford Economics head of macroeconomics, Sean Langcake, also cautioned against a sweeping cut.
‘You can panic markets even more. I’m not sure delivering an interest rate cut earlier is going to make a real difference,’ Mr Langcake said.
Fears about a global recession have hammered the Australian dollar, which on Wednesday fell to 59 US cents for the first time since March 2020 during the start of Covid.
Opposition Leader Peter Dutton claimed a recession was now looking more likely as the Trump tariffs battered global sharemarkets.
‘It is under Labor. Huge tsunami waves will hit our shores in no time at all,’ he said.
