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02 February 2004

High Rates of Self-Interest

Why we should trust The Reserve Bank.

Comment by Neil Jenman.

Looking more like sporting tipsters than economists, leading financial experts gave us their interest rate predictions on the weekend. Each expert was asked four questions – 1) When will interest rates rise next? 2) By how much? 3) When will they peak this year? 4) How high will they go?

In Sydney’s Sun-Herald, under a head-shot-photo of each expert, they gave their wise predictions. The result? This week, next month or the month after and by 0.25 per cent and the peak will be this week, next month or the month after and the highest rate will be 5.5 or 5.75 per cent.

Like sports tipsters, most economists have good intentions. But good intent is a quality seldom shared by two other groups – real estate agents and politicians.

Agents want interest rates to stay low so that sales will stay high. And politicians – especially those in government, and especially in an election year – want interest rates to stay low so that votes will stay high.

Just as we should never ask a hairdresser if we need a haircut, we should never ask agents and politicians about interest rates. Nor should we allow them to make interest rate decisions. They seem incapable of thinking beyond the next commission cheque or the next election.

The Real Estate Institute of Australia – the group that protects the wallets of agents – has called on the Reserve Bank to “put off further interest rate rises”. The Reserve Bank should ignore the real estate agents.

In a society crawling with vested interests and angles, we need to feel that those who make the decision about interest rates are not influenced by the wailings of those with a self-interest in interest rates.

The Reserve Bank Governor, Ian Macfarlane and his deputy Glenn Stevens, have more credibility than the average agent or politician. Whatever they decide, it will be in the best interests of the nation, not the self-interest of the lobby groups.

The Reserve Bank has the right experts and the right intentions which means they can make the right decisions. They deserve the public’s trust.

Neil Jenman

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