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In 2009 Swan said it was "absurd and wrong" to link fiscal policy to RBA's cash rate

Christopher Joye
23 April 2012

The Australian has been (justifiably) on the warpath highlighting the inconsistencies in the Gillard Government's attempts to jawbone the RBA into lower rates on the back of promises of tighter fiscal policy:

What was once labelled 'absurd' is now government policy in Wayne Swan's world

The Australian April 22, 2012 12:19PM

WAYNE Swan has been forced to defend the government's stance that returning the budget to surplus will allow the Reserve Bank more room to move on interest rates.

Mr Swan was challenged this morning about comments he made in 2009, saying it was "absurd and wrong" to link fiscal policy and the official cash rate.

Mr Swan said this morning conditions in 2009, when the government was rolling out its stimulus measures, were "completely different" to now and that a projected surplus of $1.5 billion in 2012/13 would allow the RBA greater flexibility to lower rates if it chose to do so.

Last week Julia Gillard delivered a speech to a business audience in Perth in which she put the onus on the RBA to cut interest rates to boost struggling sectors of the economy. She also directly tied the surplus to any future rate cuts by the central bank.

"There is plenty of room for the RBA to move further (on rates) if need be, and to all those calling for rate cuts, you should also be calling for a surplus not opposing one," Ms Gillard said...

Professor McKibbin said..."This government has been promising big budget cuts for the last three years and hasn't delivered...So the bank won't be acting on what is promised, the bank will be looking to see what is done."

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Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

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