Could the politicians blow the rate cut?

The signs are all there.

Small business confidence has hit a new low.  Business lay-offs are rising.

Inflationary pressures have eased.

The domestic economy  seems close to stalling.

And Australia’s big four banks have even cut their fixed home loan interest rates, for a second time.

So a rate cut – after 12 rises – seems certain, next Tuesday.

Doesn’t it?

Especially as the Reserve Bank, itself, has been raising expectations of a cut, by the way it has been talking.

And it’s no secret that the bank likes to fulfill expectations, when it can.

So what could, possibly, go wrong?

That’s a good question, as it happens.

The politicians, in Canberra, have been playing chicken with the budget.

The government is warning that the rate cut, expected next week, could be deferred.

It says that’s because the Coalition is planning to punch a $6.2 hole, in its $22 billion budget surplus.
That’s just politicians squabbling, though, isn’t it?

Probably.

But there is, certainly, an outside chance that the Reserve Bank board will do just that.

And if it did, the government would certainly use that event to put even more pressure on the Coalition to pass its budget, intact.

The Treasurer, Wayne Swan, is accusing the Coalition of “economic vandalism.”
The increase the government is planning in the luxury car tax, its new excise on condensate and a string of other measures would all go, if the Coalition gets its way.

And, Swan says, that could make the bank’s board nervous enough, to defer the rate cut that would, otherwise, have been a dead cert, next Tuesday.

Related stories:

1. Rate cut now almost inevitable
2. Swan dives on Liberals and banks
3. $A soars on rate hints