Earlier in December, the Governor of the Reserve Bank of Australia (RBA), Glenn Stevens, sat down with journalists from the Australian Monetary Review for an annual chat on where, economically, he thinks Australia and the globe is headed. For the record, he is pretty satisfied that almost everything is under handle, that abnormal terms of trade and development are returning to their historical norm and that we are not and are not most likely to be in recession in the foreseeable future.
A short summary of some major points touched on in the AFR interview are as follows:
On the exchange rate: Mr Stevens would like to see the worth of the Australian dollar drop a tiny additional and expects it to be reduce over the subsequent twelve months. He expects this to alter customer spending behaviour by shifting some of our overseas-based purchases back to domestic producers.
To quote: “Longer-term, we’ve come from US$ 1.05 to now US82¢ and that was a very elevated level, very uncommon. Certainly unsustainable and it hasn’t been sustained. And some additional adjustment is going to have us much much more like standard historical levels, at least against the US dollar and perhaps some of the other folks. But I think that method is not but comprehensive. It has a bit additional to go.”
On interest prices: In spite of current media commentary on the possibility of a rate cut in 2015, Mr Stevens was clear that he’s not expecting either a tightening or relaxing of monetary policy in the close to future.
To quote: “In my view, more than the past year or so, I have been asking myself what can we do that will be most conducive to supporting confidence, predictability, the sense that people can make some plans for their business, their own life, what ever it might be. And the view I came to pretty early on was: what we must be performing is providing a message of stability and predictability insofar as we can.”
On oil rates: The recent fall (primary due to enhanced provide as opposed to falling demand) is good! Unless you’re a producer, of course, but the vast majority of people are not. Falling oil prices are, in Mr Steven’s view, good for international growth.
To quote: “Cheaper natural resources and power is actually excellent for international growth. So I’m a bit reluctant, I must say, to get too pessimistic about the international outlook on that score.”
On the domestic economy: It is excellent! We need to have to boost our terms of trade and our politicians require to commence speaking the actual talk on how we are to collectively afford some of the high-priced initiatives the Australian public want, but unemployment is manageable, inflation is controlled and our credit rating remains great.
To quote: “I guess what we’re trying to say is let’s have the adult conversation about these items before we get to that day if we possibly can. It would be very disappointing if what we locate is we cannot have it until we are in a crisis.”
On the term” earnings recession”: It’s just arithmetic!
To quote: “The use of the term “income recession”, I consider, is the latest inventive way of making use of the R-word, to locate an adjective to place in front of it. The arithmetic is such that it wouldn’t matter how quickly the economy was developing. If you get a huge adequate fall in the terms of trade more than 2 quarters you will be able to say we’ve got an income recession. That’s just arithmetic. More substantively, what’s actually is happening is the getting power of Australians over foreign goods and solutions that outcome from what we export has gone down… The economy is not in recession, it’s not contracting, we’re not possessing hundreds of thousands of jobs lost over a year. We’re not increasing jobs very as rapidly as we want to, but we’re not in a recession.”
You can read the complete transcript of the interview here.
Glenn Stevens: How Australia is tracking
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