Treasurer Josh Frydenberg says the Reserve Bank has done “very well” during the coronavirus crisis, while taking a swipe at Paul Keating for criticising the way the central bank operates.
Mr Keating, the former Labor prime minister and treasurer, accused the Reserve Bank for its tardiness in the face of the pandemic.
The spat came as a growing number of economists expect the central bank to decide on a further suite of measures to help boost the economy, which would coincide with Mr Frydenberg’s budget release on October 6.
This would include trimming the cash rate to just 0.10 per cent from its already record low of 0.25 per cent, where it has stood since March.
“The RBA has done very well through this crisis,” Mr Frydenberg told the ABC on Thursday.
He said unlike other crises, the central bank “didn’t have room to move on monetary policy”.
During the global financial crisis the cash rate came down by 425 basis points, he said, which represented $100 billion stimulus into the economy.
“But because the cash rate was already low, during this crisis, it would only come down by 50 basis points,” he said.
“What the Reserve Bank did, they pumped liquidity into the banking system to stabilise it, and they purchased government bonds on the secondary market, some $60 billion worth of government bonds.”
He declined to comment on whether the RBA should cut rates further, saying whatever comments he made would impact on the markets.
“They are decisions for the Reserve Bank themselves. We will await their decisions at the next board meeting.”
Mr Frydenberg said Mr Keating’s attack was “very nasty, vindictive, unnecessary and misguided”.
He reminded listeners Mr Keating did not respect the independence of the central bank, having previously said in government that he had the Reserve Bank in his “back pocket”.
He suggested Mr Keating’s comments could have been triggered by the Reserve Bank governor’s recent comments about the trade-off between wage rises and increases to superannuation.
“The Reserve Bank is independent and he shouldn’t be attacking the bank like he has.”
Shadow treasurer Jim Chalmers said as the architect of the modern Australian economy, Mr Keating had earned the right to comment on these issues.
“On the comparison between Paul Keating and Josh Frydenberg – Josh Frydenberg in the depths of the worst recession in almost a century is a real deer in the headlights,” Dr Chalmers said.
“He’s got no idea and he’s got no ideas.”
In a statement on Wednesday, Mr Keating, who set-up the initial framework for the independent central bank, said in the 1980s and early 1990’s the central bank had the nick name of the “Reverse Bank” because they were slow in taking action on interest rates.
“As history has shown, when a real crisis is upon us the RBA is invariably late to the party. And so it is again,” Mr Keating said.