David Coleman (Banks, Liberal 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 2015 (first report), together with the minutes of proceedings. On 2 February this year the RBA decided to leave official interest rates on hold at two per cent, following the most recent rate cut in May 2015. In making this decision, the governor commented that the current circumstances called for an accomodative monetary policy, with inflation continuing to remain close to target and reasonable projections for continued economic growth. At the public hearing on 12 February, the governor stated that the Australian economy is continuing to progress through significant adjustment challenges, with current growth being driven most strongly by the non-mining sectors of the economy, particularly the services sector. The RBA forecasts that year-end GDP growth will be 2½ to 3½ per cent over the year to December 2016, increasing to three to four per cent over the year to June 2018. The governor remarked that the modest growth of the economy has been producing more employment growth and lower unemployment than anticipated, while inflation remains low with the CPI rising by 1.7 per cent over calendar 2015.

Given that current labour conditions have been better than expected, unemployment is likely to reduce further, while the participation rate is expected to increase over the coming years. Wage growth is expected to be moderate over the next few years due to spare capacity in the labour market. The RBA reports that household consumption growth has increased, which has been supported by lower interest rates and increasing employment. House prices, particularly in Sydney and Melbourne, have eased since their peak in September 2015. Substantial increases in higher density housing in recent years have led to slower growth in apartment prices, which has been linked to a rise in rental vacancy rates, while rental yields remain low.

At the time of the hearing, while the Australian dollar had appreciated a little against the US dollar and on a trade-weighted basis from its lowest level in September 2015, the effects of the dollar's long-run depreciation were still coming through. The RBA anticipates the effects of the exchange rate depreciation will continue to put some upward pressure on CPI inflation over the course of the next few years. The governor noted at the February hearing that, at its current level, the Australian dollar was supporting demand for locally produced goods and services, which has been reflected by strong growth in the services sector.

On behalf of the committee, I thank the Governor of the Reserve Bank, Mr Glenn Stevens, and all of other representatives of the RBA for appearing at the hearing on 12 February 2016. I commend the report to the House.

Report made a parliamentary paper in accordance with standing order 39(e).

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