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Pre-poll rate rise a possibility

05 February 2013

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Professor Warwick McKibbin is an ANU Public Policy Fellow at Crawford School. Professor McKibbin was a member of the Board of the Reserve Bank of Australia from 2001- 2011. He teaches Modelling the World Economy: techniques and policy implications (IDEC8127).

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An interest rate rise could be on the cards in the lead up to the general election, according to Crawford School Chair in Public Policy Professor Warwick McKibbin.

Speaking on ABC Radio National's AM show ahead of today's Reserve Bank of Australia's board meeting, McKibbin of the Centre for Applied Macroeconomic Analysis, said a rate rise was possible as we draw towards the September poll.

McKibbin, a former RBA board member, said that while global confidence is stabilising, he recognises crises could occur. 

“There is still potential for a crisis emanating from Europe and the potential for crisis emanating from the USA. There are some triggers out there for bad news but at the moment, I think there is a lot of good news around,” he said.

McKibbin talked down the risk of inflation, saying that potential threats to the national economy were most likely to come from asset price inflation.

“The bigger risk, I think, is speculative activity driving up the price in assets and then having a subsequent collapse in those prices.  That's a bigger concern and I think that is a real problem that monetary policy has to confront head on.”

When asked if the current cash rate is sustainable, McKibbin said,  “I think [a three per cent cash rate] probably will be where it is now for a few more months or it will be rising by the end of the year.”

McKibbin said the bank wouldn't flinch from raising rates ahead of the election if it thought necessary, as it did in 2007.

“I think that they will [remain independent].  I was actually on the board in 2007… in the end it was the national interest that mattered and that's what the bank will do when the time comes,” McKibbin stated.

McKibbin added that it is “absolutely the economy” rather than politics that comes first in the bank’s decision-making.

The interview can be heard on the ABC News website here:


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