Already and this is the daily This is the daily. Ohs oh, now it makes sense. Good morning and welcome to the Daily Ours. It's Wednesday, the twenty fifth of September. I'm Harry, I'm zara. It costs a lot to borrow money in Australia at the moment because of high interest rates. The Greens are pressing the government to force the Reserve Bank to cut the official cash rate target in exchange
for their support on laws to reform the bank. In today's health check on the Australian Economy, we look at whether the government can actually force interest rates to come down, why the Greens are demanding it, and when we can expect borrowing costs to come down Before Sarah. What's making headlines.
The federal government has reiterated calls for Australians in Lebanon to leave the region while commercial flights are still available. It comes amid escalating tensions between Israel and Hezbollah after
Israeli airstrikes killed around five hundred people on Monday. During an address at the UN in New York, Foreign Affairs Minister Penny Wong said Australia was doing what it could to quote prepare contingency arrangements, but one the very large number of Australians in Lebanon that it was quote beyond the capacity of the government to provide assistance to All. Australians have been advised not to travel to Lebanon since
October last year. Speaking in Wa yesterday, the PM echoed Wong's calls and said people continuing to travel from Australia to Lebanon in recent months was quote not a common sense thing to do. The Government issues these warnings for a reason.
After Pay has announced it will introduce spending caps for users. The Australian founded by now Pay Later companies said the feature is a self imposed maximum limit on the total amount you can spend with after Pay. It's expected to be rolled out in November. However, the opt in limit can be turned off at any time. The spending cap will be separate to limits on how much a user is approved to spend on online shopping based on their
shopping history. It comes after the government introduced draft legislation to regulate by now pay Later services in June. The bill is aimed at protecting users from accumulating debt via services like after Pay.
A Federal court in Argentina has ordered the immediate arrest of Venezuela's President, Nicholas Maduro over alleged human rights violations. It follows an arrest warrant from the Venezuelan Supreme Court against Argentina's President, Haavia Milay. The country has accused the Venezuelan leader of organizing the kidnapping and torture of its citizens. It also issued a warrant for the arrest of Maduro's interior minister. Venezuela has faced increasing unrest since a presidential
election in July in which Maduro's government insisted it. Opposition leader at Mundo Gonzalez declared victory, but has fled to Spain after Maduro ordered his arrest.
And Today's good News. Scientists have discovered evidence of several heat resistance coral colonies on the Great Barrier reef, showing some corals are better equipped to cope with rising sea temperatures than previously thought. Like when we use sunscreen to avoid being sunburned, corals that have adapted to withstand higher temperatures are more likely to avoid being bleached. Researchers from Southern Cross University tested over five hundred colonies across seventeen
locations along the Great Barrier Reef. The study's lead author, Melissa Nagels, said the team had found heat tolerant corals at almost all the reefs studied, highlighting how corals across the entire Great Barrier Reef may hold the key to protecting and restoring the reef. It's hoped that discovery will help scientists understand coral recovery and learn more about different strategies to protect reefs from climate change.
So, Harry, when you set up this story in the intro of this podcast, it struck me that there are so many different terms and so many different stakeholders. I guess we'll call them in this story that I think it's going to be a bit of a confusing one, but it's important and I think that you know, it has really far reaching consequences, not just for the economy but for politics and kind of everything. But I think
we should start at the beginning. One of the main players in this story is the Reserve Bank of Australia. So if people aren't familiar with the RBA, what do they need to know?
Well, the RBA is my leading cast member. If we're talking about these sets of actors and a kid kid Sarah. So, the Reserve Bank is Australia's central bank, which sets the official cash rate target. It's independent from the government, doesn't make political decisions, and it's Australia's vital economic organ if you'd like to imagine it in that way. It keeps the blood pumping in the economy.
But it's not a commercial bank.
No, but it does set interest rates for the commercial banks, So think CommBank, NAB, Westpac. They all borrow from the Reserve Bank. So think of the Reserve Bank as like the big bank. Yeah, and then the commercial banks is the ones who are relying on the RBA to set their own interest rates. So then how it works is it all sort of flows through to the consumer or to someone who's trying to get out a loan from
the bank. Their interest rates on whatever loan they have or whatever the deposit they put into their account is set by the commercial banks, but that in turn is dependent on the RBA. So do you see how it all sort of trickles down and flows through.
Yes, It's one of those times I wish that this podcast was actually in written forms so that you could draw something for someone. But you're saying there that you know, the RBA sets the interest rate and then the commercial banks passed that on to consumers like yours.
That's correct, yes, So, as I mentioned, the main thing that the Reserve Bank does is set the official cash rate target, which is what which is how we understand interest rates, so the cost of borrowing money effectively. And so when COVID hit Australia in early twenty twenty, there was so much uncertainty about what would happen to the economy at the time, so the Reserve Bank took a major decision to drop interest rates to a record low of zero point one percent. So that's a pretty cheap
borrowing rate for money. And that was because millions of people's jobs were at stake. It was a little unclear what was going to happen economically speaking in Australia, and so that is why the Reserve Bank kept interest rates so low for so long. That was until May twenty twenty two when the RBA decided to lift rates again. But Zara, it hasn't been a gradual rise ever since then.
There were ten back to back increases to interest rates set it either twenty five basis points or fifty bases points. And then on top of that, there was some other interest rates hiked since then, and that takes us to today, where the interest rate is at four point three five percent. And you might wonder, why did the RBA go from point one to four point three to five in such a short amount of time. Why did they go so full steam ahead? And there's one word that you need to know. It's inflation.
I love when you ask a rhetorical question and then answer it yourself.
Well, I'm just so keen to talk about inflation. I have to get in there.
Okay, So wait, just to recap, So May twenty twenty two, interest rates were incredibly low. From that period of time onwards, interest rates have increased quite rapidly. They've been on hold for a while now, but they've been at a really high level.
And that's because of inflation.
Yeah, and that's because inflation has been sticking around for quite a while. And so just to recap. Inflation measures the pace at which prices are rising in the economy, and the RBA's central job is to manage price stability,
so they're always keeping an eye on inflation. And it's been high over the past few years, and the RBA has been using interest rate rises as it's what's commonly referred to as a blunt tool to address inflation and bring it back down to the two to three percent range, because at its peak in twenty twenty two, inflation hit seven point eight percent as an annual rate, and it's slowly come down and it's currently bobbing along at about three point eight percent.
Okay, And so from there you can tell that inflation has been coming down, but interest rates have remained the same, right.
That's right, And I think some people are just really hoping that the rates will change sometime soon. But yesterday the RBA chose to keep interest rates of four point three five percent, and it's been at that rate since November last year, yep. And having interest rates stay so high for so long makes things a bit tough economically speaking,
because by design, it's meant to discourage extra spending. And so the group of people that is most affected by a high interest rate is homeowners paying off their mortgage. And the RBA Governor Michelle Bullock actually recently suggested home loans are just so expensive at the moment because of high interest rates that some people might actually have to consider giving up their property and some may ultimately have to make the very difficult choice to sell their home.
And so as always, we're playing the waiting game to see when the RBA will choose to cut interest rates.
Okay, and so this waiting game is one that you know, Australians have become very accustomed to. It's that we wait like it's a COVID press conference for you know, the RBA's decision. But then this week there was a concept thrown around by the Greens that perhaps it's not not just the RBA who can make these decisions, and that perhaps someone.
Else can well enter my second character, the government, because the Greens were throwing out this idea that the government could actually do something about interest rates if it wanted to itself. So the Greens's Economic Justice spokesperson, Senator Nick McKim pretty much said to Treasurer Jim Chalmers, hey, you could actually reduce interest rates if you wanted to. Jim. Now,
Nick McKim is one hundred percent right. There is actually a special power in the RBA Act, which is the Lord's governing the way the Reserve Bank functions, which actually gives the government of the day the legal authority to force the RBA to change the official cash rate target, but it's never been Uszara.
I think it's such an interesting story, this idea that the Greens are saying to the government, no, you should be doing something about this, and then the government in return, I guess, you know, not least the last couple of months, has been saying no, this is the RBA's decision, wholly independent from one another, and it leads to this very complex kind of political web.
Absolutely, and journalists put this to the government this week said will you actually go with what the Greens are suggesting and cut interest rates as a very extraordinary move and something that hasn't been done since the RBA was a fully independent body since nineteen sixty And on this question Finance Minister Katie Gallaher responded and she gave a pretty clear answer.
Well, I just think the Greens are out of control at the moment, full of self importance and out seeking populist approach to everything, and it's crazy what they're saying to us. So if that's their ultimatum, and you know, it's a bit unseemly. Nick McKim going around issuing ultimatums. You know, no, we won't work with that.
It was a flat out no. That's because the Treasurer has been asserting the independence of the Reserve Bank from government decisions, because in his view, these worlds shouldn't collide. The Greens were throwing out this idea though, because they wanted to put it as a condition for their support to pass legislative reforms to the RBA through Parliament, because as it stands, it's currently stuck in the Senate and the Greens have the numbers to potentially get it over
the line. But the Greens were saying they won't agree to it unless interest rates come down.
I feel like this story couldn't have gotten more complex if we tried, and somehow we've just added another layer. So we're saying here, the Greens have had this idea and they've said the government must do xyz otherwise we will not support your legislation that's actually about the RBA in the first place, and the government needs the Greens support in order.
To pass that.
Right.
That's right, And there's been some questions on whether the government's just going to have to shelve this legislation now, whether it's just going to have to keep it on the back burner until it can get some more support
later down the track. But it does seem like since the government's saying no, we're not going to break all orthodoxy and cut interest rates just because the Greens are asking us to, we're going to be on the edge of our seats for a little bit longer waiting for the RBA to make the decision to bring interest rates down.
Do we have any idea of when that could be, Well.
We do have some tea leaves that we can read together to guess what will happen in the future. That's the beauty of the economy. A lot of it is based on projections and estimations. So overseas, the US Federal Reserve reduced its cash rate target last week, taking the rate down to about four point nine percent, because inflation over in the US is dropping, so the central bank decided that it was time to bring interest rates down as well, and that was the first time that had
happened since COVID nineteen. It's also happened in the UK, it's happened in Europe, and naturally we want to think, well, when is it going to happen in Australia is going to happen, you know, anytime soon. Australia is a little bit different in two respects to those other economies. First of all, interest rates and inflation were higher in those places compared to Australia, and inflation peaked earlier than it
did in Australia. So naturally, if the same cycle were to apply here, we'd have to wait a little bit longer. The RBA Governor Michelle Bullock also told a press conference earlier this year it would be quote premature to expect an interest rate cut by the end of twenty twenty four unless there are some economic changes that are very significant that would mandatea cut. So you know, pray tell
we don't have another pandemic. But that was a situation that nobody could have predicted, and the Reserve Bank responded by cutting interest rates to an all time low.
So what does that mean then for us? We just sit back and wait.
As I said earlier, the main thing the RBA is keeping an eye on is inflation. If inflation sticking around, we can expect that interest rates will stay higher for a little while longer. But if inflation does start moderating a bit, and we see unemployment potentially rise as well. These are two big factors that weigh on the RBA's mind. Then the nine members of the board who are deliberating on interest rates might choose to act on interest rates
and bring them down if that's occurring. For now, economists and banks are broadly expecting that there will be a rate cut by early next year.
Yep.
And even though they do have the power to make it happen. My second character, the government really wants an early Christmas present in the form of an interest rate cut from the RBA. And the question now is will the RBA wrap it up in the nice little boat and deliver it to them by December.
It's so interesting and I think, you know, ending on that note just shows even though the two are independent from one another, the RBA and the government, the government is ultimately held to a cat for the decisions of the RBA. And you know, cost of living and the feeling that homeowners, especially our feeling right now the squeeze might be taken out on the government at the next election, so they'd be hoping more than anyone that these interest rates come down soon.
And I think that goes back to why Jim Chalmers is that such pains to say that the RBA is an independent body setting interest rates because I don't think Jim Chalmers wants to take the fall for it too much. But if he's able to keep them at arm's length and say no, it's this independent economic body that is setting the interest rate decisions, not me, then there is a bit of distance between that decision and what a government is doing to address inflation.
It's absolutely fascinating, Harry. Thank you for explaining that, and thank you for joining us for another episode of The Daily Oz. If you are listening to this on Spotify or Apple, we would love you to hit follow, and if you're watching us on YouTube, we would love you to subscribe. We'll be back for another episode tomorrow, but until they have a great day.
My name is Lily Maddon and I'm a proud Arunda Bunjelung Calcuttin woman from Gadighl Country.
The Daily oz acknowledges that this podcast is recorded on the lands of the Gadighl people and pays respect to all Aboriginal and torrest Rate island and nations. We pay our respects to the first peoples of these countries, both past and present,