RBA Governor Stevens spoke before the Australian parliament's House of Representatives' Standing Committee on Economics today.
His comments are here:
- Opening Statement to House of Representatives Standing Committee on Economics (link to the full text of his opening address at the RBA website)
- RBA governor Stevens testimony: Further fall in AUD likely to occur
- More from RBA governor Stevens: AUD is more or less doing what we expect it to do
- RBA's Kent weighing in now: Animal spirits are lacking in business
Now, from CBA:
- RBA is becoming a little concerned about whether rate cuts are losing their potency given the low level of rates
- But ... says Stevens "We do not think that monetary policy has reached the point where it has no ability at all to give additional support to demand. Our judgement is that it still has some ability to assist the transition the economy is making, and we regarded it as appropriate to provide that support"
- "So the door is certainly open to further rate cuts if the Board thinks the economy needs an extra nudge along."
On the AUD:
- ... the Stevens' remarks indicate a degree of comfort with currency trends, especially now the depreciation is apparent in trade‑weighted terms as well
- We suspect that the AUD was also a factor behind the February cut
- Against a backdrop where many other central banks were cutting rates, the RBA's concern would have been an AUD moving in the wrong direction if the Bank did not follow suit
- We also suspect that the RBA worries about the risk of future upward pressure on the AUD from shifting global capital flows - the lower the AUD starting point the less damaging those flows if they eventuate
- The Governor was careful not to nominate a "target" for the currency - although he did suggest a USD0.75 level in his interview with the AFR in December
On central bank 'guidance':
- He implicitly warned about relying on central bank "guidance"
- The failure to remove the "period of stability" language before cutting rates reflects a view that if the outlook is changed it is "best to get going with policy"
- The Governor explicitly noted that it was "not our job to make sure nobody is surprised"
And:
- Stevens sounds reasonably relaxed about house price trends and that any stimulus from rate cuts to housing activity can be contained
- This is clearly an area that needs to be watched closely, particularly given the Governor's comments about the changing effectiveness of interest rate changes. It probably also underlies remarks about the need to reload the fiscal cannon. The Governor believes that we should be on a better fiscal trajectory than we currently are.
