Former RBA governor calls for deep cuts

by Adam Smith01 May 2012

A former Reserve Bank governor has joined the chorus of those calling for a 50bp cut when the RBA meets today.

Former RBA boss Bernie Fraser has told ABC's 7:30 that the central bank should move more than its typical 25bps.

"Everyone is expecting at least a quarter and that loses its impact and its effect on confidence. You have to get ahead of the game occasionally and trump those expectations," Fraser said.

Fraser said economic conditions left room for a deeper cut to the official cash rate.

"I think the economic circumstances, signs of weakness in large parts of the economy and going with that a lack of worry about the inflation problems, provide an opportunity to do that," he said.

Fraser also revealed that he opposed the bank's formal 2-3% target band for inflation, set by former Treasurer Peter Costello in a letter of agreement signed by former RBA governor Ian Macfarlane.

"The Reserve Bank Act says what the bank has to do. It has to have regard to employment and growth as well as inflation. The letter was about giving priority to inflation. Orthodox central bankers don't need any encouragement to give priority to inflation," he said.

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