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RBA has big responsibility to fight inflation first :Business

09 November, 2007

NSW’s largest business organisation, NSW Business Chamber, says it expects the Reserve Bank to fulfil its obligations to act independently and to ignore the current election campaign.

“The Reserve Bank has a responsibility to call it as it sees it, be there an election in soon or not. The independence of the Reserve Bank is one of the pillars of Australia’s economic success and we should be thankful that an independent Board is making a call on monetary policy rather than elected officials in the midst of an election campaign”, said Kevin MacDonald, CEO of NSW Business Chamber. 

MacDonald said which ever way the decision of the bank goes, it is important that the Bank did not flinch in fulfilling its charter.

“Business loathes interest rate increases, it loathes inflation even more.  The costs and impacts of interest rate increases whilst not pleasant, do not compare to the negative impacts of inflation on an economy.

“Inflation destroys the power of savings, destroys purchasing power and impacts on a nation’s competitiveness.

“It should be noted that we are experiencing the side-effects of an economy running at full speed. The economy is finely calibrated and we are seeing the impacts of strong growth and a tight labour market.

MacDonald said the worst thing that could happen to inflationary pressures was for changes in the regulation of labour markets that inhibited individual agreements.

“Individual agreements allow for growth in real wages, without that growth being fed into the wider economy. Increases under individual agreements are confined to where they are justified because of the productivity of the person. Collective agreements by their very nature feed inflationary pressures into the economy very quickly - they have a contagious effect.  Where wages are primarily determined by awards this effect is even quicker and more damaging.

“AWAs create the mechanism by which wages growth pressures are contained, rather than exported to the wider economy. The abolition of AWAs would remove this important safety valve from the workplace relations system”.

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