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Australia’s Central Bank Looks Likely to Cut Rates ⁠— From the Outback

EconomyJul 01, 2019 06:00PM ET
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© Reuters. Australia’s Central Bank Looks Likely to Cut Rates ⁠— From the Outback

(Bloomberg) -- The Reserve Bank of Australia’s policy decision on Tuesday is more unusual than most.

Not only could Governor Philip Lowe and his board deliver a second consecutive interest-rate cut –- the last time the RBA did that was in 2012 -- it’s also the first time they will meet in Darwin in more than 50 years.

A city closer to Jakarta than Sydney, Darwin is a symbolic trip for the policy makers. Lowe will deliver a speech on his rates policy to community leaders and then plans to travel to East Arnhem Land to meet with indigenous groups and pay respects to the RBA’s first governor, the legendary H.C. ‘Nugget’ Coombs, half of whose ashes lie in the area.

The last time the RBA’s board met in Darwin it adjusted policy to encourage saving. Fifty-one years later, Lowe and his colleagues return with the aim of spurring Australians to spend.

The central bank is striving to revive an economy that’s just clocked 28 years without recession, yet is on track for its weakest fiscal year since 1991. Markets are pricing in a 70% chance that the RBA will take rates to a record 1% on Tuesday, while 21 of 32 economists in a Bloomberg survey expect them to move.

Lowe and his board have a number of risks to balance: domestically there’s a sagging property market making consumers hesitant, and a government infrastructure boost coming; globally, a U.S.-China trade truce for now won’t do much to halt a slowdown in China and the world economy.

The RBA chief must sometimes wish he had the levers available to Coombs. At the June 1968 board meeting a shortage of liquidity led the RBA to lift the bank deposit rate in order to spur saving. Lowe, in contrast, is regularly inundated with letters from savers -- often older Australians -- complaining his rate cuts are eroding their income.

The RBA’s 1968 Darwin meeting was actually the mid-point in an Outback odyssey that saw the board fly through Queensland, the Northern Territory and Western Australia to look at new mines that were springing up. It was a different era: these days Lowe and his deputy, Guy Debelle, aren’t supposed to be in a plane together, let alone the whole board.

Community Engagement

The RBA’s return to Darwin five decades on is more coincidence than design. Officials say board members find the community engagement aspect of trips outside Sydney useful to help understand sentiment. Having recently journeyed to Hobart, Darwin was the obvious next choice. Once that visit was decided, it was suggested the RBA try to rekindle the relationship with the people of East Arnhem Land.

Coombs’s ties with the region dated back to a dispute over copyright on the artwork on the A$1 bill by artist David Malangi. In 1967, Coombs met Malangi and resolved the issue, and also began an association that would stretch through until Coombs’s death in 1997 at age 91. (Half of his ashes were scattered at the Australian National University and the other half in East Arnhem Land).

In his final nine months as governor through 1968, Coombs was also chairman of the Council of Aboriginal Affairs and an early proponent of reconciliation. He would take up the cause of Arnhem Land’s people in their fight against a bauxite mine constructed in the area; this involved the famous bark petition protest that is now on display in parliament house.

Despite his extensive contacts in government, Coombs was unable to halt the mine. But he would make contact with a young Galarrwuy Yunupingu, who would go on to be a leader of the Australian indigenous community and older brother to Mandawuy, late front man of rock group Yothu Yindi.

It is this history Lowe is seeking to reconnect the RBA with. Together with Catherine Tanna, a board member and managing director of EnergyAustralia; Susan Moylan-Coombs, a broadcaster and granddaughter to Nugget who was also a member of the Stolen Generation; Philip Gaetjens, Secretary to the Treasury who sits on the central bank board; and Anthony Dickman, secretary at the RBA.

If rates are cut and all goes well, it will at the very least give the governor a day free of letters from angry pensioners.

Australia’s Central Bank Looks Likely to Cut Rates ⁠— From the Outback

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