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Title : 'We've cut interest rates perhaps too far', John Howard warns
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'We've cut interest rates perhaps too far', John Howard warns

Australia's second longest serving prime minister, John Howard, has cautioned against further interest rate cuts, arguing that the Reserve Bank has already lowered the cash rate "perhaps too far".

Key points:

• Former PM John Howard says he is "not sure these interest rate cuts have been the right thing to do"
• Mr Howard says a record low cash rate of 1pc leaves little room to move in the event of a crisis
• On the US-China trade war, Mr Howard says "you don't have to choose" between the two countries

Mr Howard is attending the mining industry's big annual conference, Diggers and Dealers, in the gold mining town of Kalgoorlie, Western Australia.

Asked whether the Reserve Bank's two successive rate cuts in June and July were the right approach to boosting the economy, Mr Howard expressed reservations.

"I'm not sure that these interest rate cuts have been the right thing to do," he told ABC's The Business program.

"I think we've cut interest rates probably far enough already, perhaps too far. But I don't think my advice will be taken."

Mr Howard said a key reason for his view that interest rates are too low is that it leaves a lack of room for central banks to move in the event of a sudden crisis.

"[Among] a number of reasons why we came through the GFC so well is that our interest rates were higher when we entered the GFC and the central bank had room to move," Mr Howard argued.

"If you cut them too far you get rid of all the petrol in the tank. If something unexpected comes along you don't have the same room for manoeuvre.

"It's a point of view, and I'm not claiming any special expertise, but I think we've gone quite far enough and perhaps too far."

However, when asked if the Government therefore needed to do more to stimulate the economy, as the Reserve Bank governor had repeatedly hinted in calls for more infrastructure spending and economic reforms, Mr Howard responded that the Coalition's mere presence in office was stimulatory.

"I think the best thing the Government did to boost the economy was to get re-elected, because it lifted the threat of punitive additional taxes on Australian business and Australian individuals," he told The Business.

"I think the sense of relief that we don't have those extra taxes is over time going to prove very valuable."

'Closer to America' but 'good relationship' with China needed

On the current trade war between the US and China — leaving Australia in the difficult position of being caught between its biggest trading partner and most important military ally — Mr Howard said the Australian Government should try not to pick a side.

"You don't have to choose. You can have good relations with both, but they're of a different character," he said.

"We'll always be closer to America because our values are the same, but we have a great economic link with China. We have a lot of people of Chinese heritage in Australia. Chinese is the most widely spoken foreign language in our country.

"It's in our interests consistent with our values to have a good relationship with China, and that's the role of the Government, and I think the Government is handling it well, and I think previous Labor governments have done a pretty good job on that front as well."

However, the rift between China and the US has widened over the past few days, with the US declaring China a currency manipulator after Chinese authorities allowed the renminbi to depreciate to more than 7 per US dollar.

That currency devaluation was in turn a response to US President Donald Trump's announcement last week that tariffs would be imposed on an additional $US300 billion of Chinese imports into the US.

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