He may not have been wearing a glitter tattoo (a la Mark Carney), but Glenn Stevens – in his final speech as governor of the Reserve Bank of Australia – was still able to find a way to crack a joke before taking a swipe the reliance on monetary policy around the world.
Delivering his regular, annual – but in this case final – address to Anika Foundation before flying his light aircraft off into the policymaking sunset, Mr Stevens warmed up the crowd early by thanking attendees over the years for their donations and generosity, then said:
The only problem is that while the Foundation is required to donate at least 4 per cent of the fund each year to activities consistent with its charter, it is hard to find assets that earn 4 per cent with acceptably low risk.
We’re gonna miss him, writes Peter Wells.
In his speech, titled “An Accounting“, Mr Stevens took the opportunity to reflect on his decade at the helm of the RBA. It was more useful to “take the approach of looking at average outcomes over decade-long periods”, he said.
But given it was only at the start of this month he presided over a rate cut to a record low 1.5 per cent in his penultimate meeting as governor, there is probably more focus on his thoughts looking ahead.
Acknowledging that Australia’s trend growth rate has “probably slowed a little”, Mr Stevens said it was surely no coincidence that bring Australia’s budget back into balance would be a long path.
Then it was time to grab the popcorn (emphasis ours).
Many difficult choices will need to be made along the path of budgetary adjustment. At present, general public debate starts with commitment to the need for reform and for putting public finances on a sustainable medium-term track. But when specific ideas are proposed that will actually make a difference over the medium to long term, the conversation quickly shifts to rather narrow notions of ‘fairness’, people look to their own positions, the interest groups all come out and the specific proposals often run into the sand. If we think this rather other-worldly discussion will not have to give way to a more hard-nosed conversation, we are kidding ourselves. That will occur should there be a moment of crisis, but it would be better if it occurred before then.
Mr Stevens said, although it may complicate the fiscal discussion, participants can’t simply assume monetary policy “can simply dial up the growth we need. We need some realism here.”
That’s a pretty robust throwdown at a time when a closely-contested national election has some Canberra watchers anticipating slow progress – if not deadlock – when it comes to instituting necessary reforms.
But, please, Glenn, continue …
As would be clear from my utterances over the past couple of years, I have serious reservations about the extent of reliance on monetary policy around the world. It isn’t that the central banks were wrong to do what they could, it is that what they could do was not enough, and never could be enough, fully to restore demand after a period of recession associated with a very substantial debt build-up.
Only yesterday, economists at National Australia Bank became the first of the four major lenders to float the idea of the RBA cutting rates to 1 per cent next year and possibly unconventional monetary policy thereafter (if it isn’t required sooner). Skirting that near-zero boundary will be the perhaps unenviable remit of Philip Lowe, who takes over as RBA governor from mid-September.
Across the ditch, the Reserve Bank of New Zealand holds its policy meeting on Thursday morning and is widely expected to cut interest rates. Both the RBA and RBNZ have managed to avoid, thus far, resorting to the sort of unconventional monetary policies that have been introduced elsewhere in the developed world.
Mr Stevens pointed out he was not advocating an increase in deficit financing of day-to-day government spending. “The point I am trying to inject here is simply that popular debate in Australia about government debt and how we limit or reduce it seems so often to be conducted while largely ignoring the size of private debt,” he said.
The outgoing governor also took the opportunity to defend the central bank’s adherence to its target of underlying inflation in the range of 2 per cent to 3 per cent.
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