From Professor Warwick McKibbin of the ANU, as reported by The Australian:
Warwick McKibbin accuses Labor of U-turn on fiscal-rates link
BY: SID MAHER AND JOE KELLY From: The Australian April 20, 2012 12:00AM
FORMER Reserve Bank board member Warwick McKibbin has accused Labor of backflipping on its argument about a link between fiscal policy and interest rates.
Julia Gillard said yesterday the government's delivery of a budget surplus in 2012-13 would "give the Reserve Bank room to move on monetary policy if it chooses to, knowing that an interest-rate reduction is good for families and business".
She used a speech to business leaders in Perth to challenge critics of Labor's budget strategy, saying those calling for an interest-rate cut from the current rate of 4.25 per cent should support the return to surplus.
But Professor McKibbin, a respected economist who left the RBA board last year, said the government's argument reversed its position when it was running a budget deficit that looser fiscal policy was not pushing up rates.
"If there was a link now, there was a link two years ago," he said...
Professor McKibbin said he expected the RBA board to cut official rates by 25 basis points at its meeting next month, to "calm things down" in the wake of weaker growth and political pressure, but it would wait for hard data before cutting again.
