Rate cut to avert recession

Despite all the gloomy commentary (including from yours truly), our economy isn't in recession and may not get there. Certainly, the authorities are fighting hard to prevent it happening.

To this end the Reserve Bank is likely to cut the official interest rate by a further 0.5 percentage points tomorrow, just before the Cup is run.

In a speech he gave last week, the Reserve's deputy governor, Ric Battellino, was at pains to counter the gloomy predictions.

Noting that Australia managed to sidestep the global recession in 2001, he asked whether we could do it again.

"That is certainly what we are aiming for," he said, "and there is nothing in the data to suggest that we are off track.

"But the economy is being affected by powerful forces from different directions, and it is unclear what the net effect will be. The impact of global developments is particularly uncertain.

"We also have to recognise that the task of managing the economy this time will be more difficult than in 2001 because we are starting with a bigger inflation overhang.

"The bank has for some time thought that inflation would peak in the second half of 2008 and then fall; accordingly, we have acted pre-emptively in reducing interest rates.

"Nonetheless, there is still a big task ahead to bring inflation down, and this could limit room for manoeuvre on monetary policy."

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Rate cut to avert recession | smh.com.au
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Rate cut to avert recession | smh.com.au