Our federal politicians haven't been shy in giving the independent central bank advice on interest rates in the past couple of weeks.

So it will be interesting to see if the Reserve Bank of Australia (RBA) heeds the thoughts of these monetary policy fans when it holds its first board meeting of the year next Tuesday.

The flurry of recommendations kicked off in late January following the release of another set of benign inflation numbers, which have helped fuel expectations the RBA will deliver a further cut in the 4.25 per cent cash rate.

"With underlying inflation sitting squarely in the RBA's target band, it does create room for further interest rate cuts into the future," Treasurer Wayne said, in an unusually candid outlook.

A couple of days later, after the International Monetary Fund made sweeping cuts to its global economic growth forecasts, opposition treasury spokesman Joe Hockey said the RBA had the capacity to do much of the heavy lifting to stimulate economic growth.

"Interest rates today are comparatively high as compared to the rest of the world, and the bank has tremendous capacity to move further to stimulate economic growth by reducing interest rates and they should do that before the government starts spending," he said.

This week, the stream of advice rolled on.

Labor front bencher Bill Shorten pointed out there was plenty of scope for monetary policy adjustment.

"If all the bad scenarios take place, what we're able to do - or through the independent Reserve Bank, is they're able to decrease the cost of money," he said, momentarily forgetting who actually pulls the rate lever.

Even Prime Minister Julia Gillard weighed in on the issue.

"Putting the budget into surplus when domestic economic growth is around trend means that we are well positioned to deal with further global financial and economic uncertainty and crises if that should occur," she told a business function during her first major speech of the year.

"And it increases the scope for our independent Reserve Bank to ease monetary policy when conditions require."

Interestingly, Ms Gillard met with RBA governor Glenn Stevens for a briefing prior to her speech.

Whether these were also the thoughts of Mr Stevens, Ms Gillard wouldn't say, telling reporters they had talked about the "opportunities and challenges" in the current economic climate.

But pricing on financial markets certainly suggests that the cash rate will more than likely be cut to four per cent from 4.25 per cent at the RBA meeting.

National Australia Bank head of research Peter Jolly, whose job is to gauge the interest rate outlook for the bank's clients, says the central bank probably won't disappoint in delivering another 25 basis point cut, after similar reductions in both November and December.

He says the case for a cut has compounded, due to higher bank funding costs, a higher Australian dollar, weaker actual and expected employment growth, and a benign inflation outlook.

"The case against is that they've already cut their cash rate 50 basis points, lending rates are a little below average, and the economy is still more mixed than really soft," he said in a weekly interest rate analysis.

"For the remaining sceptics, the massive investment in the resource sector is happening."

While the RBA has room to cut by 25 basis points next week, Mr Jolly said a further reduction would depend on how much of any rate cut the retail banks passed on to borrowers, and future inflation trends.

The major banks have warned their funding costs in overseas markets are rising because of the European debt crisis, so they may not be able to pass on a rate cut in full.

Mr Hockey suggests the RBA use its rate statement to provide some guidance on whether it's reasonable to expect a rate move to be passed on in full or in part, because it sees more data on bank funding profiles than the public.

"The Reserve Bank has the skills, they have the ability to liaise with the banks on their funding profiles, and therefore the Reserve Bank could give a clear indication to the Australian people what they expect to be the pass on benefit for any changes in monetary policy," he said.

One person who Glenn Stevens will be seeking advice from at Tuesday's meeting doesn't sound like he will be thumping the board table for a rate cut.

Fairfax chairman Roger Corbett, one of the longest-serving members of the current board, this week spoke of Australia's "wonderfully strong position" relative to the rest of the world.

"We've got pretty close to full employment and that employment is across a lot of industries in Australia," the former Woolworths boss told ABC's Lateline program this week.

"We've got mining expanding dramatically, enormous investment, providing great employment, great opportunities, great revenue sources for the future."

While he recognised the "conservative consumer" was dampening retail revenues, he said other sectors like rural Australia were doing much better.

"So there are parts of the economy doing quite well and parts doing extraordinarily well."

But Mr Corbett is just one of eight voices on the board that Mr Stevens will confer with on Tuesday ... assuming the hopes and aspirations of our politicians aren't enough.

Share This Page: