The biggest news this week — whether we like it or not, and by a margin so wide you could fly a plane through it — was the release of a major review of the Reserve Bank of Australia; the first in four decades.
RBA overhaul
Australia’s central bank has in recent years been on a steady slide out of public favour. That slide reached nosedive status after RBA Governor Philip Lowe delivered a kidney punch to prospective homebuyers by repeatedly stating throughout 2021 that interest rates would not rise “until 2024 at the earliest”. In a staggering betrayal of public trust, he proceeded to unfurl 10 consecutive rises between May 2022 and March 2023.
So, yes … the RBA was more than due for an overhaul. Released on Thursday, the review’s report outlined 51 recommendations put forward by a three-person panel, with treasurer Jim Chalmers saying he “agrees in-principle” with all of them.
Chief among those suggestions is a push to give equal weight to fighting inflation and achieving full employment. The RBA’s board will also be split in two — a monetary policy board and a governance board — to allow for a greater focus on effective decision making.
Big news indeed. So big, in fact, that — as Rachel Withers pointed out in Schwartz Media’s The Politics — it overshadowed a separate report released on Tuesday. That report, prepared by the Economic inclusion Advisory Committee, centred around the key recommendation that JobSeeker payments need a substantial increase.
It is no small matter that a number of politicians, including former Labor leader Bill Shorten, have admitted they could not live on the pittance JobSeeker provides. Likewise, it is no great surprise that the recommendation of an increase was immediately rejected by the government, even as experts claim extreme poverty is itself a barrier to the kind of unemployment rates the RBA is so bent on achieving.
US debt ceiling increase
Across the pond, US House Speaker Kevin McCarthy has been working to gain support for a US$1.5 trillion (A$2.23 trillion) increase to the nation’s debt ceiling.
The bill, which McCarthy hopes to pass in the House of Representatives next week, would take the nation’s debt ceiling — the maximum amount the government can borrow to meet its financial obligations — materially north of the current US$31.4 trillion (A$46.7 trillion) limit.
Some analysts had predicted the US government would exhaust its cash and borrowing capacity — the so-called the “X Date” — sometime in the third or fourth quarter of this year. But underwhelming tax receipts could expedite the risk of a debt default, thereby exposing global financial markets to wide-ranging repercussions.
Previous legislative standoffs over debt limits during the last decade have typically been resolved before any shockwaves could take effect. But there are concerns the Republican Party’s narrow majority in Congress could make it difficult to reach a compromise this time around.
A mixed day for Australian shares
Back home, the Australian share market opened lower this morning, following a shaky day on Wall Street yesterday, brought on in part by a tumble in Tesla (NASDAQ:TSLA) shares.
Tesla stocks took an almost 10% hit overnight after Elon Musk said the electric vehicle manufacturer would continue slashing prices in an effort to drive up demand. So far this year, the company has delivered six price cuts, with more expected to come.
By midday on Friday, the Australian share market was down 0.3%, with miners largely leading the losses. BHP (ASX:BHP) dropped 1.9% after cutting production targets for some of its nickel and copper assets, while at the same time warning its iron ore and coking coal divisions would likely meet the lower end of target ranges.
The energy sector, however, fared better. Woodside Energy gained 0.6% after saying it would stand by its output guidance for the year.
Meanwhile, Whitehaven Coal (ASX:WHC) jumped 4% on news that its Vickery project will begin producing coal within the next 15 months.
Written by Oliver Gray.