Saturday, August 27, 2011

Relax. Rates steady for months to come

Reserve Bank governor Glenn Stevens has signalled steady interest rates for months to come, saying in turbulent times it’s “a good idea to sit still”.

But at the same time he has dashed hopes of cuts in rates or intervention in the foreign exchange market to take pressure off the dollar.

Told the high Australian dollar was causing firms such as BlueScope Steel to close plants and lay off workers Mr Stevens told the parliamentary hearing he understood but added: “What can we do about it?”

“Arguably interest rates can be a bit lower than otherwise, but I would say they are.”

“We haven’t intervened. I myself thought when it reached $US1.10 it was getting a bit ahead of itself, but it has fallen back a bit since then. We have not intervened because our assessment is that it would be fairly futile in the environment we are facing - there are very big global forces at work.”

Mr Stevens called on China to devalue its currency - “a significant distortion in the global system,” but he said Australia’s views carried little weight.

“I can make the comments, and no doubt they will be publicly reported, but what would really make the difference is a long-run engagement with the Chinese on why it is actually in their interests,” he said.

Both sides of politics should be prepared to delay their commitment to return the budget surplus...

“Let us suppose you saw weaker than expected activity and the budget took longer to go to surplus. There is nothing particularly wrong with that, actually. Are we going to jack up rates were that to occur? No, I do not think so.”

The governor suspected inflationary pressure was easing but said it was too early to tell.

“In times of tremendous turbulence, I think it’s a good thing just to sit still if we can, rather than add to turbulence by starting to change our settings. It is often good to sit still as a kind of tactical thing,” he told the hearing.

Published in today's Age

My favourite bit from Friday's hearing:

Dr LEIGH: Governor, there have been a number of statements that you and others have made about the importance of pay being strongly related to productivity outcomes in the economy. In a context in which there has been some public comment on the salaries of Reserve Bank officials, this might be a useful opportunity for you to comment on your views on some of that commentary, changes in Reserve Bank salaries and the relativities to other central banks.

Mr STEVENS : I am not sure I can help much there. I do not set my own pay. The board set it. They had quite a lengthy process of reviewing it after the system had been in place for many years. They took their decision, and I take what I am given, like anyone else in the country. I am not able to give you the whys and wherefores of whether that was an appropriate decision. I did not take it. I had no involvement in it.

Yes. "I take what I am given, like anyone else in the country."

If only. $1.05 million

Gittins: "Stevens's pay has jumped 85 per cent in five years, equivalent to annual rises of 13 per cent."

Like anyone else. If only.

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