Kelly O'Dwyer (Higgins, Liberal Party) Share this | Hansard source

On behalf of the Standing Committee on Economics, I present the committee's second report, entitled Review of the Reserve Bank of Australia annual report 2013, together with the minutes of the proceedings.

Ordered that the report be made a parliamentary paper.

by leave—I am very pleased to be presenting the second report of the economics committee of the 44th Parliament as part of the committee's review of the Reserve Bank of Australia's annual report 2013. This report follows a hearing with the Governor and other officials of the Reserve Bank on 7 March 2014 in Sydney. The RBA noted in its May 2014 Statement on monetary policy that 'overall economic activity picked up over the past six months, with the economy looking like it grew at close to its long-run average pace over this period'. The RBA also commented:

The outlook for Australia's trading partner growth is little changed since the February Statement.

It went on:

… growth of Australia's trading partners in year-average terms is forecast to be around its long-run average in 2014 and 2015.

Currently, RBA forecasts indicate that GDP growth in Australia will be slightly below trend, 2.75 per cent, over 2014 to 2015. This is anticipated to pick up over 2015 to 2016. Although the outlook for inflation appears to be a little higher than six months ago, it remains consistent with the medium-term target. Underlying inflation is forecast at 2.5 to 3.5 per cent to June 2015.

It is clear that the decline in investment by mining companies is set to continue. Other areas of demand, such as non-mining capital expenditure, could partly offset this downturn, but other sources of growth will also be needed. The labour market is likely to remain soft for a while due to the current period of below-trend growth, but it is notable that the indicators in this regard have recently become more positive.

As noted by the RBA in its May 2014 statement, the exchange rate remains a 'significant source of uncertainty' for economic and inflation forecasting. The Australian dollar is currently trading at about 10 per cent below its 2013 peak, but the Governor has reiterated his view that the dollar remains overvalued based on costs and productivity in Australia relative to those of other countries.

Demand for new housing appears to have remained strong, including First Home Owner Grants and loan approvals for new dwellings. The Governor commented that construction of new dwellings will probably rise strongly in the year ahead. As Australia has been undersupplied in recent years in terms of new dwellings, increases in residential construction activity are to be welcomed. In recent years, productivity growth has been somewhat sluggish in Australia. However, the Governor suggested that this is likely to improve with the ramping up of output growth in the resources sector. Other drivers of productivity growth are likely to be needed. The RBA board decided to leave the cash rate unchanged at 2.5 per cent at its most recent meeting on 3 June. The Governor commented in relation to the board's decision that monetary policy was appropriately configured to foster sustainable growth in demand and inflation outcomes and that the most prudent course is likely to be a period of stability in interest rates.

Finally, 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 before the committee on 7 March 2014. I commend the report to the House.

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