The Reserve Bank of Australia has left interest rates unchanged in its monthly decision announced today.
The cash rate remains at 2.75%. The bank last changed the rate in May.
In a statement, the Governor of the bank, Glenn Stevens, said: “The Board judged that the easier financial conditions now in place will contribute to a strengthening of growth over time, consistent with achieving the inflation target. It decided that the stance of monetary policy remained appropriate for the time being. The Board also judged that the inflation outlook, as currently assessed, may provide some scope for further easing, should that be required to support demand.”
The new Treasurer, Chris Bowen, has held a press conference to comment on the Reserve Bank’s decision.
- Listen to Bowen – transcript below (17m)
Statement from Glenn Stevens, Governor of the Reserve Bank of Australia.
At its meeting today, the Board decided to leave the cash rate unchanged at 2.75 per cent.
Recent information is consistent with global growth running a bit below average this year, with reasonable prospects of a pick-up next year. Commodity prices have declined further but, overall, remain at high levels by historical standards. Inflation has moderated over recent months in a number of countries.
Globally, financial conditions remain very accommodative. However, a reassessment by the market of the outlook for monetary policy in the United States has seen a noticeable rise in sovereign bond yields from exceptionally low levels. Volatility in financial markets has increased and there has been some widening of credit spreads.
In Australia, the recent national accounts confirmed that the economy has been growing a bit below trend over the recent period. This is expected to continue in the near term as the economy adjusts to lower levels of mining investment. The unemployment rate has edged higher over the past year and growth in labour costs has moderated. Inflation has been consistent with the medium-term target and is expected to remain so over the next one to two years, notwithstanding the effects of the recent depreciation of the exchange rate.
The easing in monetary policy over the past 18 months has supported interest-sensitive spending and asset values and further effects can be expected over time. The pace of borrowing has remained relatively subdued, though recently there are signs of increased demand for finance by households.
The Australian dollar has depreciated by around 10 per cent since early April, although it remains at a high level. It is possible that the exchange rate will depreciate further over time, which would help to foster a rebalancing of growth in the economy.
At today’s meeting the Board judged that the easier financial conditions now in place will contribute to a strengthening of growth over time, consistent with achieving the inflation target. It decided that the stance of monetary policy remained appropriate for the time being. The Board also judged that the inflation outlook, as currently assessed, may provide some scope for further easing, should that be required to support demand.
Transcript of Treasurer Chris Bowen’s Sydney press conference.
BOWEN: Thanks for coming everybody. Today I wanted to comment on the Reserve Bank’s decision on interest rates on Moody’s announcement re-affirming Australia’s AAA credit rating, and make some general comments.
Today, of course, the RBA has announced that they will keep the cash rate unchanged at 2.75 per cent. Current low interest rates are providing support for the economy, particularly the non-resources sectors in the economy, which have been experiencing challenges in recent times – and of course low interest rates are providing cost of living assistance to Australian families.
Now, of course our economy remains resilient, with growth at 2.5 per cent, low inflation, low unemployment at 5.5 per cent, strong public finances and our AAA credit ratings.
In addition, and as the RBA has noted, the full effects of the recent rate cuts that they have implemented over recent months have yet to flow through to the economy in entirety. Also, the RBA still has considerable room to move if they feel the need in coming months. If we see that the economy needs more support because global growth becomes less stable or other factors change, the Reserve Bank does have the capacity for further changes into the future.
At a time when we do have global uncertainty and significant challenges around the world, the Australian economy remains stable and resilient. Yesterday, the ratings agency, Moody’s, reaffirmed Australia’s AAA credit rating with a stable outlook. Moody’s was very clear in their view that the Australian economy is resilient and well managed. Australia remains one of only eight countries in the world with three AAA credit ratings and a stable outlook. Only Australia, Canada, Denmark, Finland, Norway, Singapore, Sweden and Switzerland are able to claim this.
Now of course, there’s a lot of loose language around about our Budget at the moment, about our fiscal situation. Mr Abbott talks about a fiscal emergency, a Budget emergency. Well if this is a Budget emergency, it’s an emergency that many countries around the world would like to have, and this is underlined again by Moody’s reaffirmation of Australia’s AAA credit rating with a stable outlook.
Given this is my first full press conference as Treasurer, I thought I’d also make some general comments about the state of the economy and the nature of the changes in the economy that we are dealing with.
Over the last decade or so, we’ve seen the largest mining investment boom in Australia’s history. This has been very important to our economic performance. This has contributed to a big increase in national incomes and together with our strong financial management through the GFC, it has contributed to our 21 years of economic growth – unparalleled around the world and unprecedented in our history. But now we are seeing commodity prices start to fall and investments in mining, meaning that global supply is increasing, which is, of course, something we’ll be managing in the Australian economy for some time to come. In addition, we’ve seen demand start to moderate, partly due to China’s own economic transformation and the transition they are dealing with. For example, since the 2013-14 Budget we’ve seen the price of iron ore fall by around 15 per cent and the price of gold by around 21 per cent.
Now this change will have significant implications for the Australian economy, including the exchange rate, which has already started to fall. We can expect to see the terms of trade fall to levels that are still high by historical standards but which are coming off that very, very high base indeed. This reduction in our terms of trade of course affects our national income and it is important to emphasise that we do not expect a significant impact on our real economy, what we actually produce.
In fact, large parts of the economy will benefit from the lower dollar. Yesterday, for example, we already saw the Ai Group Performance and Manufacturing Index increase to 49.6 – essentially an early indication that the contraction in manufacturing may be drawing to an end. And in mining, as I’ve said before, we are seeing a transition from investment phase to the production phase.
Now the investment and construction phase are very labour-intensive, sucking up workers throughout the economy on those large, those massive, mining projects that have been built right throughout our north and our west. The production phase is a very different phase for our economy and managing the transition to the production phase and dealing with this decline in our terms of trade will require very careful economic management in the coming months and years.
Of course, I’ll be working with the Prime Minister, the Finance Minister and other key colleagues in managing this transition, ensuring our economy remains well-managed and that our financial position remains prudently managed.
We’ll ensure that fiscal policy remains prudent without embarking on the massive wholesale cuts to jobs and services which Mr Abbott advocates. We’ll ensure that our policy settings are right for the economy now and into the future so that no region or community misses out on a secure and prosperous future.
Of course, managing large transitions in the economy is what Labor Governments do. It’s what Hawke and Keating did in the 1980s and ‘90s in that most important of our economic transitions to a modern, outward-looking modernised economy. It’s what the Rudd Government did, managing the transition through the Global Financial Crisis and through to the other side more successfully than any other advanced major economy, and it’s in that tradition that this Government will approach the economic times ahead.
More than happy to take some questions.
JOURNALIST: Treasurer, do you agree with the Prime Minister that the China mining boom is over, and how do you assess the global risks at the moment given that he thinks they’re quite ugly?
BOWEN: I agree with the Prime Minister when he says that the mining investment boom is drawing to an end and we’re now transitioning to that production phase. Yes, I do agree with the Prime Minister on that point and that underlines the importance of economic management – careful and considered economic management in the months and years ahead. Managing any transition in the economy is always difficult – managing any transition in an economy that is changing. Because you want to make sure that transition is managed smoothly, that we have a seamless transition to an economy which is more focussed on mining production and export, rather than major construction of very large sites. That’s the challenge facing the Government and the Australian people and the Australian economy in the months and years ahead.
JOURNALIST: Under a Labor Government, when will the Budget next be in surplus?
BOWEN: I stand by the Budget predictions which were put out in May. That is the Government’s Budget and all the forecasts in there are forecasts that we stand by.
JOURNALIST: And when does that say you’ll next be in surplus?
BOWEN: Well, that shows it’s returning to surplus – returning to balance in 2015/16 and surplus in the years following.
JOURNALIST: Sorry, Treasurer, how much of the heavy lifting is the Australian dollar doing at the moment in terms of policy?
BOWEN: Yeah well, the Australian dollar has come off, we’ve seen it come off in recent weeks. That is of some assistance to some sectors of the economy, particularly manufacturing and those sectors which are heavily focused on exports, of course it is. And that is what the exchange rate is meant to do – the floating exchange rate is meant to do. That’s why Paul Keating floated it in 1983, so it could play that role. It’s a role that we keep a close eye on in making sure that it does play that role and it does through the operation of market forces. And that should be allowed to continue.
JOURNALIST: Can I ask how do you view a surplus? How critical do you think a surplus is?
BOWEN: Well, we stand by our fiscal rules, and our fiscal rules are that we return to surplus over the economic cycle, and that’s what the Budget outlines – and I stand by that, and I stand by that as an important arrow in our economic armament.
JOURNALIST: Well Kevin Rudd it seems has suggested that it’s not that critical, a surplus. Do you agree with that?
BOWEN: Well I’m not sure I accept the premise of your question. We stand by our fiscal strategy, which is to return to surplus over the economic cycle. Now of course, we do that in a responsible way, we do that in response to emerging challenges and difficulties. But our long term commitment has been to a surplus over the economic cycle.
JOURNALIST: You spoke to the BCA this morning, how real is business desire for a certainty on an election date?
BOWEN: Well I’ve been in regular contact with the BCA. The Prime Minister met with the BCA this morning and I’ve had a number of discussions with them, and I’m having more discussions with them, including today. Of course the business community is always looking for certainty, and the Prime Minister has indicated that he is abiding by the certainties of the traditional constitutional convention, which is that when the Prime Minister has settled on an election date, he does the Governor General the courtesy of advising her, gets her agreement, and then announces it.
JOURNALIST: Treasurer, given that we’re on the cusp of an election campaign, do you think the Reserve Bank should stand aside during election campaigns?
BOWEN: No, the Reserve Bank should exercise its independence and make the decisions it feels are in the best interests of the economy, regardless of any political cycles.
JOURNALIST: What was the BCA – what offers or promises did you make to them this morning?
JOURNALIST: What did you say to them about an election date?
BOWEN: The Prime Minister met with the BCA this morning; I’ve been in regular contact with the BCA. And of course, I’ve said to the BCA – and I’ve known Tony Shepherd a long, long time, as I’ve known many business leaders in Australia a long, long time – that we will have an open and constructive and positive dialogue about all issues important to the Government and important to the business community.
JOURNALIST: Is it likely the Parliament will be recalled so changes to the carbon pricing can be legislated?
BOWEN: Minister Albanese, the Leader of the House and Deputy Prime Minister, has dealt with the matter of the recall of Parliament. Parliament is scheduled to sit on a timetable which was outlined at the beginning of the year. Whether the Parliament sits again will be a matter for the Prime Minister.
JOURNALIST: You’re not privy to that? Has it been decided?
BOWEN: The Prime Minister decides election dates. Any more questions today?
JOURNALIST: Yes, on the immigration –
BOWEN: I want to see whether anyone else wants a go, because I’ve given you a very good go indeed.
JOURNALIST: Treasurer, could you just gives us your views on the global risk scenario, given that the Reserve Bank, for the second month in a row, didn’t tell us anything about China today, which is a fairly big part of the parcel for us?
BOWEN: Well, the thing about China is that, as I said, they’re going through their own economic transition. They have made – the Chinese Government has made some steps in recent weeks and we’ve seen that play out in the inter-bank lending rates etcetera. But the important thing about China is that it’s 50 per cent bigger than it was even a few years ago, so that as China continues to grow – even at a perhaps slightly more moderate rate – it still has a very big impact on the Australian economy and a positive impact on the Australian economy, and the world economy.
So we do need to bear in mind, the risks of China’s growth coming off what has been a very high level, but we also need to keep it in context in terms of the impact it has on the Australian economy.
JOURNALIST: The Prime Minister mentioned that, you know, the world economy is a quite frightening place at the moment. Are you in agreement with that?
BOWEN: Of course what the Prime Minister is referring to are those risks across the economy. We’re looking at Europe in what has been a now prolonged economic downturn, and there is concern that that will continue – and of course Europe is very important for the world economy. The US is doing better but there is downside risk in the United States – downside risk in relation to the bearing up of the debt ceiling and the removal in the fullness of time of quantitative easing by the Fed. And of course we’re seeing the elements of China and India as well going through their own transition – so there are risks in the world economy and Australia is well-placed with careful economic management to deal with those risks.
JOURNALIST: Under the new economic management of the Government, are you reframing the economic messages, it seems to have got significantly darker since, um…
BOWEN: Well I’m calling it as I see it. I’ve been Treasurer now for a few days and I’m calling it as I see it. And as I see it, the Australian economy is resilient. As I see it, the Australian economy has grown well, due in large part to this Government’s strong economic management. But as I see it, there’s a transition to manage which will continue to require careful economic management and of course, you’ll forgive me for saying, it’s the Government with the skills and the experience to provide that economic management. The Opposition, I would argue, has a different approach.
JOURNALIST: On immigration policy, your previous portfolio, the Foreign Minister Bob Carr says Australia is accepting too many economic refugees. Does that suggest that the process under you, or the Immigration Department under your watch, was defective?
BOWEN: I stood in this room and answered immigration questions for three years. I was happy to do so. I’m now the Treasurer and I leave immigration questions to the Immigration Minister and the Foreign Minister.
JOURNALIST: He’s only made the comments in the last few days and this relates to a period under your watch, so could you comment please on whether the process has been defective?
BOWEN: I agree with the Foreign Minister and his comments and I agree that these things should always be kept under review.
JOURNALIST: To what extent do you agree?
BOWEN: I’ve answered your question, thank you.
JOURNALIST: Ah Treasurer, the Prime Minister has been pretty critical of [inaudible] the British Government’s attempt to get back to surplus by referring to so-called harsh austerity measures. I’m just wondering whether you agreed with those remarks and whether you also think in the Australian context whether there’s any room to cut spending without harming growth?
BOWEN: Well I do agree with the remarks. I think every context is different, of course. The United Kingdom is dealing with a wholly separate set of circumstances and an economy, frankly, with many more challenges than ours faces, and those contexts about austerity are in that context. In Australia, we have adopted prudent financial management, including savings – substantial savings across many years – and that is the appropriate and prudent thing to do. And of course would continue – and will continue to be the appropriate thing to keep our Budget under constant monitoring in relation to our medium term fiscal strategy.
Now, in relation to austerity, of course, that’s not the approach that this Government takes. Austerity is a word that has been used by Opposition spokespeople in the Australian context, not by Government spokespeople.
JOURNALIST: Can I just ask, to what extent do you agree with Bob Carr and his comments?
BOWEN: I agree with him. Full stop.
JOURNALIST: But doesn’t that suggest –
BOWEN: I agree with him, full stop. And I would remind you that when I was Immigration Minister I began the review of refugee processing determination that is now coming to fruition and I did so because I was concerned to ensure that our refugee processing is as robust as possible. We have a generous refugee and humanitarian program, an extremely generous refugee and humanitarian program – the highest per capita resettlement program in the world. It is meant for people are genuine refugees.
Every Government around the world, every nation around the world faces the situation where people claim asylum. Some of those are genuine and some of those are not and you need to have a package in place to ensure that those genuine refugees are able to be processed and accepted and non-genuine refugees are rejected and returned, and we need to ensure that our refugee status determination process keeps up with the trends around the world and the changing circumstances and the changing groups of people coming to Australia to claim asylum, and I agree with the Foreign Minister.
Alright, thank you very much.