Craig Thomson (Dobell, Australian Labor Party) Share this | Hansard source

On behalf of the Standing Committee on Economics, I present the committee’s report entitled Review of the Reserve Bank of Australia annual report 2007 (Second Report), together with the minutes of the proceedings.

Ordered that the report be made a parliamentary paper.

The Reserve Bank of Australia appeared before the Standing Committee on Economics at a public hearing on 8 September. Since the Reserve Bank of Australia last appeared before the committee in April 2008, there has been significant upheaval in the global economy. The change in the economic conditions between April and September provided the RBA with the evidence to cut rates. The Governor of the RBA, in his statement announcing the 2 September rate cut, noted the tighter financial conditions but said that Australia’s terms of trade were working in the opposite direction. A measure of the volatility in global financial markets is the significant downturn in conditions that occurred between the 2 September and 7 October meetings of the RBA board. The series of events that occurred during this period led the RBA board to cut the official cash rate by a hundred basis points, the largest single reduction since 1992. This was followed by a 75 basis point reduction of the official cash rate in November, taking the total cash rate reduction of 200 basis points over the three months from September. These were the first cuts in interest rates for seven years.

The economic downturn arising from the US subprime mortgage crisis and the severe financial instability that arose in September 2008 focussed the attention of governments around the world. A range of measures have been taken domestically and internationally to stabilise markets and provide financial certainty. Compared to the impact the global financial crisis is having on other advanced economies, the Australian economy and financial system are notable for their robustness. During the hearing, the governor stated:

… what we see in Australia is an order of magnitude less troubling than what we see abroad.

He went on to say:

Australian financial institutions continue to present a contrasting picture to their peers in the US, Europe and the UK.

Additionally, the International Monetary Fund in its October 2008 World economic outlook commented:

… sound fiscal positions provide scope for allowing automatic stabilisers to operate in full and for judicious use of discretionary stimulus if the outlook deteriorates further.

It is crucial during these uncertain global economic times that monetary policy and fiscal policy work together to shelter the Australian economy from the full impact of the global economic crisis. That is why this government has taken quick and decisive action, introducing a $10.4 billion Economic Security Strategy to strengthen the Australian economy and support Australian households during the global financial crisis.

During a speech in November to the Australia and Japan Economic Outlook Conference 2008, Malcolm Edey, Assistant Governor of the RBA, stated:

The fiscal package announced by the Government in October will provide a near-term stimulus of a bit under 1 per cent of GDP.

And the government fiscal package was one of contributing factors that would:

… help to cushion the effects of the much more difficult global environment in which we now find ourselves.

The May budget forecast that problems abroad would slow the Australian economy and impact on employment. The government took the tough decisions in the budget to build a strong surplus to act as a buffer in an economic slowdown. This is now providing the flexibility to respond to a deterioration in the Australian economy. The government has already taken decisive action to strengthen our economy and protect Australians, including its guarantee to Australian depositors and wholesale funding to ensure the Australian market remains globally competitive.

During an address to the Trans-Tasman Business Circle on 21 October 2008, the Governor of the RBA, Mr Stevens, supported the government’s decision and stated:

This will ensure that Australian institutions, some of which are among the highest rated of the world’s banks, are able to retain adequate access to term funding in an environment where banks of other countries are able, in effect, to use the rating of their governments when borrowing. Steps in these directions, in the context of what other countries were doing, were sensible and the Reserve Bank supported them.

Additional liquidity has also been injected into the Australian economy by the Australian government, through the Australian Office of Financial Management. The AOFM will be investing $8 billion in residential mortgage backed securities over the next three years. In such extraordinary times, decisive action is essential and that is what this government has done, and now monetary and fiscal policy are working in tandem to help Australia confront the uncertain economic conditions.

On behalf of the committee, I would like to thank the Governor of the Reserve Bank, Mr Glenn Stevens, and other representatives of the RBA for appearing at the hearing on 8 September. The next hearing will be held on 20 February 2009, in Canberra. I would also like to take the opportunity to thank the member for Aston for his help. He was the deputy chair of the committee and is now no longer on the committee. I commend the report to the House. (Time expired)

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