Retail Giant Lew Criticises RBA’s Handling of Resources Boom


Retail giant Solomen Lew criticised on Monday the alleged mishandling by the Reserve Bank of Australia's ( RBA ) of the resources boom. He said the bank's board lacked an understanding of the broader Australian economy.

Mr Lew immediately called for a cut in the overnight cash rate by up to 75 basis points to bring back to life the weak economic growth across the east coast.

"I really believe the RBA has mishandled the mining boom to the great detriment of the non-mining sector, in particular retail.... With great respect, the RBA needs to drop interest rates immediately and I'm not talking about 25 basis points they need to help stimulate confidence at a time when all of Australia should be booming," said Mr Lew, who was RBA board member.

He opined that a little inflation would not hurt the Australian economy, which goes a recent hint from the RBA that the country's economy cannot grow beyond 3.5 per cent a year without causing wage inflation. The RBA said the current interest rates are still appropriate.

"When you look at the eastern seaboard, as far as I'm concerned, it's completely frozen. There are now new jobs being created the only jobs are in the west basically and that's the mining sector," Mr Lew pointed out.

He pushed for an immediate interest rate cut and called for a rate reduction by 50 to 75 basis points in the next RBA policy board meeting.

The financial markets are anticipating the RBA to begin reducing interest rates from the middle of 2012, but investors are expecting a 25 per cent chance only for an interest rate cut during the April 3 RBA board meeting.

To worsen the situation, the big four have declared their independence from RBA policies by hiking interest rates in the past few weeks despite the decision by the Australian central bank to retain the current 4.25 per cent overnight cash rate.

Mr Lew also bewailed the lack of adequate industry representation in the RBA. He recalled that when he was with the RBA, it had two directors in the retail sector and one landlord.

The present board has only one member in the retail industry, former Woolworths Chief Executive Roger Corbett. During Mr Lew's time in the board, David Jones Chairman Dick Warburton and Westfield Chairman Frank Lowy were members of the RBA.

However, a spokesman for Treasurer Wayne Swan rejected Mr Lew's criticism of the RBA board's composition which he said had appropriate range of experience, knowledge and perspectives from across the economy.

"I have a view that they are not in touch with the market and don't understand where the economy is at the moment.... There is a big danger of jobs being lost and that has put a dampener on the economy," he warned.

Mr Lew served as RBA board member from 1992 to 1997, when he was the chairman of Coles Myer.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Commodities

Referenced Stocks: RBA

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