Will RBA lift rates before May 21 federal election as it did before John Howard’s 2007 loss?

This could well be the crucial week in this year’s election campaign.

On Wednesday, we’ll get the inflation figures. And, if as expected, they show a dramatic leap in the cost of living, there’s a chance that it could force the Reserve Bank of Australia to hike interest rates right before the May 21 poll.

It’s a slim chance, admittedly, because the RBA doesn’t interfere in the political process and doesn’t want to be seen to be doing so.

However, that principle cuts both ways. As a body independent of politics, it has a duty to act in the national interest, regardless of a looming election.

It wouldn’t be the first time it has happened.

Back in 2007, a little over a fortnight before John Howard’s Coalition government was swept from power, the RBA hiked rates in a bid to cool an economy threatening to overheat from the combined effects of a resources boom and government largesse.

John Howard (left) and then treasurer Peter Costello just before the 2007 federal election that Mr Howard lost to Labor’s Kevin Rudd.(AAP: Paul Miller/File)

To a large extent, it’s purely academic. If the first rate hike doesn’t arrive three weeks before the upcoming election, it more than likely will land just 10 days after whichever party gains power.

Make no mistake, the RBA is coming under increasing pressure to act, and soon. The US already has hiked rates and is likely to push through a double rise next week. Both Canada and New Zealand, in recent weeks, have snuck through two hikes in one go.

Everywhere, the issue is the same: Inflation is running wild. Initially fuelled by a faster-than-expected recovery from the pandemic, following huge amounts of monetary and fiscal stimulus, it was exacerbated by production shortages and logistics problems.

Then came the war in Ukraine, and the resulting disruption to global trade in energy, grain and minerals has thrown an accelerant on that blaze.

Inflationary pressures building

Unlike many developed nations, we gather our inflation numbers just four times a year, instead of every month.

That makes life tough for our central bank, given one of its primary roles is to keep inflation in check.

Not surprisingly, many interest rate movement decisions have tended to come in the meeting immediately after the data release.

Three jockeys race to the finish line in the 2020 Melbourne Cup.
The running of the Melbourne Cup in early November often coincides with the RBA’s decisions on interest rates.(AAP: Pat Scala)

That’s why the RBA acted on Melbourne Cup Day, just before the 2007 election. In fact, given so many rate move decisions have occurred just before the horses hit the track at Flemington, the first Tuesday of November is often jokingly referred to as “the rates that stopped the nation”.

Cost-of-living pressures are looming as a key election flashpoint in this campaign. Fuel prices have been soaring and businesses have been struggling to keep a lid on price rises, some of which now are being passed through.

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