AUSTRALIA leads the world, and a bloody good thing it is, too.

This is the theme of the response to Glenn Stevens’ bold 100-point cut to interest rates.

I agree with it, and congratulate the Governor of the Reserve Bank of Australia and the RBA board for their boldness at a time of great global peril.

I said ahead of the decision that a 50-basis-point cut was likely, but a greater cut “would suggest panic at the highest levels”.

We now know that the papers written for yesterday’s meeting suggested the conventional 50-point cut that had been widely predicted.

It was the gruesome weekend news – about the rapidly worsening situation in global credit markets – that prompted Stevens to go for the larger cut.

Stevens would say “deep concern” was the issue, not “panic”, and I do not quibble with this.

The world’s financial system is in a big mess – “panic” being an entirely appropriate description of the state of mind of investors and financiers – and the immediate aim must be to fix it quickly and definitively.

Stevens has done his bit. Good on him for throwing away the standard approach – which he would have endorsed the previous week, when papers for the board were settled – and acting boldly.

Henry has been critical of the Reserve for moving too little too late in recent years.

The current bold attempt to get ahead of the curve is entirely appropriate, and its greeting by virtually every Australian is a sign of this.

Henry notes that the lesson – act boldly to get ahead of the curve.

The Australian Business
by Henry Thornton
8th October 2008

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