Rates jitters spark election talk on the markets

Emails were whizzing round London money markets last night spreading rumours that John Howard would call an election on the weekend with the polling day to be set for Saturday 1 September to avoid a rise in interest rates, writes Christian Kerr.

“The speculation surrounds his endeavours to avoid the RBA hiking interest rates following its next meeting,” Crikey has been told.

“The rate hike announcement would occur on 8 August. If he called an election this weekend, the caretaker conventions under the Westminster system of government suggest (but it’s not certain) the RBA would have an obligation to hold the line on monetary policy and interest rates during the formal election campaign.”

“I am not a Constitutional lawyer and this issue has never been tested, but is a monetary policy change during a formal election campaign ‘showing partisanship’ or is it a decision that is ‘likely to commit an incoming government’,” an email asked.

“The Reserve Bank Board, including the Governor, are appointed by the Government and the RBA falls under the umbrella of responsibility of the Treasurer,” it said.

“Under the RBA Act, the Treasurer also has the power to override any decision of the RBA Board. Again, this has never happened, but records are made to be broken.”

A reply claimed “If PM Howard does in fact call an election this weekend, he will destabilise market confidence in the independent operations of the RBA and policy making more generally – note the AUD has fallen markedly in the wake of the rumour.

“Interest rate speculation wouldn’t go away during any campaign and the RBA statement on 13 August would be signal the RBA’s interest rate biases anyway.

“There is also the possibility that the RBA could have the power to adjust rates anyway which would clearly be the final nail in the coffin for Mr Howard if indeed it did hike on 8 August.

“All up, the 1 September option for the Federal election is a very low chance. More likely is the poll being called in the middle of September, after the APEC leaders meeting for late October or November.”