Saturday, February 12, 2011
The governor told the parliament's economics committee Friday rates were "about right for the medium term outlook". Cyclone Yasi and the floods hadn't much changed that outlook.
"Market pricing at present has nothing much happening until quite late this year, which means they think nothing much is happening for some time," he said.
"I would not want to say that is unreasonable given the facts as we now know them. That is not a guarantee that nothing will happen, but I am fairly content with where we are."
"I think we are in a good position," the governor added. "I think we are ahead of the game, which is where you want to be. That is the thing that affords you periods of sitting, waiting and watching. Sometimes they can be reasonably lengthy periods."
The Australian dollar slipped below US$1 on the governor's words... closing at US$0.9994, down from US$1.0073.
Asked whether retail banks would attempt to widen their margins anyway Mr Stevens consulted his deputy Ric Battellino who said their interest costs were probably only increasing by about 0.05 percentage points a year.
"We are not contemplating a rise now," said Governor Stevens. But if we were, I think it is not very likely that there would be material changes in retail rates at the moment. But since we are not contemplating a rise right now we do not have to worry too much."
The summer floods and cyclone would push recorded inflation up to around 3 per cent by June but the effects should then begin to reverse and should be "largely gone by the end".
Economic growth could be as much as one percentage point lower by the March quarter as supply chains were disrupted, but "the bulk of those losses would be recovered in the June quarter" as production resumed.
"This is a shocking event to the people involved, but I do not think the overall demand track in the economy will be seriously affected," he said. "It is not a global financial crisis slump in demand and a total collapse in confidence."
While the $8 billion bill for rebuilding seemed big, it was modest compared to the size of the Australian economy and to two coal seam gas projects underway in Queensland each worth $15 billion.
Of longer term concern for the Bank was a growing conservatism among consumers that, while immediately helpful, might one day necessitate a cut in rates.
"For reasons I am not sure I can articulate entirely satisfactorily, I think people have just
changed their view about saving, borrowing and consuming," he said.
"If they got really, really cautious then I suppose it is conceivable you could imagine a scenario where interest rates might go down. I do not think that will happen, but you cannot say for sure that it will not."
The was much more discussion of economics in Australia than in other countries and much more reporting on the central bank.
"I think we get too much coverage to be honest - more than we should - but that is just my view," Mr Stevens said.
The thoughts of Governor Stevens
. Interest rates "about right"
. No case for for banks to widen margins
. Hit to GDP in March quarter, recovery in June
. Inflation to hit 3% before subsiding
. Consumers increasingly cautious
. "Too much coverage" of the Reserve Bank
Evidence to House of Representatives Economics Committee, February 10, 2011
Published in today's SMH and Age
Governor Stevens testimony February 11 2011
. The thoughts of Governor Stevens
. Relax. Nervously. Reserve Bank Governor Stevens
. Reserve calls banks bluff