RBA should raise interest rates following June rate cut mistake: Warwick McKibbin

Former RBA board member Warwick McKibbin says the central bank made a mistake at its last meeting by cutting the cash rate and misread the economic signals.

He says RBA should raise the cash rate at its meeting today to stem the “boom in the economy”.

McKibbin was a member of the RBA board from July 2001 until the end of July 2011 and is now professor of economics at the Australian National University and a member of its “shadow” RBA board.

McKibbin says the RBA missed reading the boom in the economy as he saw it and cut rates in anticipation of what might happen in Europe.

“If you’re always adjusting to what you think is going to happen, you’ve got the problem that if it doesn’t happen, you’re in the wrong place,” McKibbin said as reported the Australian Financial Review.

Of the other members of the ANU’s shadow board, only Jeffrey Sheen, professor of economics at Macquarie University agreed that the cash rate should go up.

Just 16% of the board called for a rate cut.

The full list of the shadow board is:

• Shaun Vahey, Professor, RSE, ANU. (non-voting chair)
• Paul Bloxham, Chief Economist (Australia & New Zealand), HSBC Bank Australia Ltd
• Mark Crosby, Dean of the Global MBA Program, Acting Dean of the Global BBA Program, and Professor of Economics, S P Jain Center of Management in Singapore
• Mardi Dungey, Professor, University of Tasmania, CFAP University of Cambridge, CAMA
• Saul Eslake, Chief Economist, Bank of America Merrill Lynch Australia
• Bob Gregory, Professor Emeritus, RSE, ANU, Professorial Fellow, Centre for Strategic Economic Studies, Victoria University, Adjunct Professor, School of Economics & Finance, Queensland University of Technology
• Warwick McKibbin, Professor, RSE, ANU, CAMA
• James Morley, Professor, University of New South Wales, CAMA
• Jeffrey Sheen, Professor & Head, Department of Economics, Macquarie University,Editor, The Economic Record, CAMA
• Mark Thirlwell, Director, International Economy Program, Lowy Institute for International Policy