Daniel Mulino (Fraser, Australian Labor Party) Share this | Link to 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 2021, together with the minutes of proceedings.

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

by leave—The Australian economy is experiencing challenging conditions. Over the past year or more a number of global factors have contributed to an environment of rising global inflation. Australia, along with all major economies, has been affected by this. I know from speaking to many people in my electorate that individuals and families are feeling cost-of-living pressures. It is timely that the House Standing Committee on Economics Review of the Reserve Bank of Australia annual report 2021be tabled at this time.

Over the past 12 months, Australia has experienced rising inflation and, in turn, rising interest rates. This is affecting household budgets. The government has responded with a range of targeted measures, including an increase in the minimum wage, cheaper medicines and more affordable child care. Today I would like to focus on monetary policy over the period covered by this report. In setting the context of the current situation, the RBA governor identified that the macroeconomic challenges and uncertainties for Australia largely originated in the global economy. These included rising inflation and a risk of economic slowdown in major economies, including the US, the EU and the UK; continued risks surrounding production levels and supply chains in China; and the consequences on global food and energy prices of the ongoing illegal war in Ukraine.

One of the policy issues the committee explored was the RBA's conduct of monetary policy. In particular, at the time of the publication of this report, there had been a number of interest rate rises since May 2022. The committee asked the RBA how, when considering further rises, the bank took into account the fact that the rate rises would take time to work through the economy. The RBA acknowledged that there could be considerable lag before interest rate rises had their full impact on economic activity, and that this factored into the decision-making.

The committee also explored aspects of past monetary policy implementation, including forward guidance and yield curve control. In both cases, the RBA acknowledged that it would have done things differently with the full benefit of hindsight. Based in part on reviews that the RBA has undertaken, the RBA has identified a number of lessons to be learnt from that episode.

The committee explored the inflationary pressures being experienced by the economy. The RBA agreed that inflationary pressures are a combination of demand-side and supply-side factors. The committee noted this and is keen that the RBA continue to take into account, when making decisions around rates, that supply and demand side pressures affect the economy differently. Another aspect of monetary policy is that the interest rate rises that we are experiencing affect groups of people differently when responding to demand-side pressures. The committee expects the RBA will continue to analyse the distributional determinants from which demand-driven inflation is emanating, and that this be reflected in interest rate decisions.

The committee also explored the interplay between fiscal and monetary policy—in other words, whether the decisions of the RBA and the government are supporting each other's goals. The RBA agreed it was important that fiscal and monetary policy work together. The governor was asked about the government's current fiscal settings, and he indicated that the bank was comfortable with them, in terms of their inflationary impact, and that he did not expect that spending priorities would put upward pressure on interest rates.

In summary, our economy has experienced rising inflation over the last 12 months. The independent RBA has responded to this with a sequence of interest rate rises. The House Standing Committee on Economics continues to monitor the conduct of monetary policy, given its impact on members of the community, and the important role that the RBA and its monetary policy conduct plays in broader economic management.

Garth Hamilton (Groom, Liberal National Party) Share this | Link to this | Hansard source

by leave—I'd like to begin by commending the chair on his fine efforts in leading this most important of committees. It has never been a more important time for this committee to do its work of holding the RBA to account; in fact, I think it was back in 2007 when the House economics committee last oversaw such a rapid change in monetary policy. I'd like to thank committee members for the collegiate way they have addressed things, and, most importantly, thank the secretariat for helping us through things; we're a rather young committee with such an important role. I thank them for their fine work.

I will make one personal comment. The chair and I have made extensive efforts to have an open conversation about the importance of keeping the focus on the RBA's work here. There has never been a more important time for us to do that, and I'm very grateful that he has engaged in the way that he has. Thank you, Member for Fraser.

I will note very quickly that, in reading the report, the report feels very dated given it's only three months old. That's because so much change has happened in the economy during that time. It's very interesting to read the governor's comments at the time, saying that the outlook was uncertain but positive. That is very reflective, but I'm not sure we'd make the same statement now. That shows how much change was happening during the decision-making of the RBA at that time. We must remember household spending was still very strong but, very interestingly, consumer confidence was quite weak. It was a unique situation. Anecdotally, many of us will have looked back over the summer period and seen that high spending continuing on as savings that had been accumulated during the pandemic dwindled. I am reflecting there that there is not an end to the change we're going through; we'll probably see this focus continue, no doubt, in the next meeting with the governor of the RBA.

One of the points I will take up—and the chair has done an excellent job of summarising the report—is that we went into a prolonged discussion, and have since carried that on, around the forward guidance provided by the RBA governor that has become the subject of significant media scrutiny since. It's important that we delved into that and it's important that we hold the RBA to account on future statements they make, particularly because these are statements that impact households, aspirational Australians, mums and dads and young people right across the economy; they make decisions based upon these statements. It's crucial we make clear to the RBA who is impacted by these statements. Going forward, that's something that will be a continued theme of our investigations.

I follow up with this last point that was very well raised, around the convergence of fiscal and monetary policy. The governor made a statement about those two working very well together during the pandemic period in terms of achieving a set outcome. It's important for us to continue a focus on that, particularly in keeping an eye on potential future fiscal expansion and what that would mean. As the chair pointed out, the governor was comfortable with where things are. I'd like him to remain comfortable; that's the best way possible for us to alleviate those inflationary pressures on households we're observing.

To go back to the start, I thank the chair and the committee very much for their hard work, and I thank the secretariat.

Daniel Mulino (Fraser, Australian Labor Party) Share this | Link to this | Hansard source

I'd like to reiterate with my thanks to the deputy chair, the member for Groom and other members of the committee who are here. It has been a very collegial and well-functioning committee. I move:

That the House take note of the report.

Debate adjourned.