Glenn Stevens: How Australia is tracking

Earlier in December, the Governor of the Reserve Bank of Australia (RBA), Glenn Stevens, sat down with journalists from the Australian Financial Review for an annual chat on where, economically, he thinks Australia and the world is headed. For the record, he is pretty happy that everything is under control, that abnormal terms of trade and growth are returning to their historical norm and that we are not and are not likely to be in recession in the foreseeable future.

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A brief summary of some main points touched on in the AFR interview are as follows:

On the exchange rate: Mr Stevens would like to see the value of the Australian dollar drop a little further and expects it to be lower over the next twelve months. He expects this to alter consumer spending behaviour by shifting some of our overseas-based purchases back to domestic producers.

To quote:  “Longer-term, we′ve come from US$1.05 to now US82¢ and that was a very elevated level, very unusual. Surely unsustainable and it hasn′t been sustained. And some further adjustment is going to have us much more like normal historical levels, at least against the US dollar and maybe some of the others. But I think that process is not yet complete. It has a bit further to go.”


On interest rates: Despite current media commentary on the possibility of a rate cut in 2015, Mr Stevens was clear that he′s not expecting either a tightening or relaxing of monetary policy in the near future.

To quote:  “In my view, over the past year or so, I have been asking myself what can we do that will be most conducive to supporting confidence, predictability, the sense that people can make some plans for their business, their own life, whatever it might be. And the view I came to pretty early on was: what we should be doing is giving a message of stability and predictability insofar as we can.”


On oil prices: The recent fall (main due to increased supply as opposed to falling demand) is good! Unless you′re a producer, of course, but the vast majority of people aren′t. Falling oil prices are, in Mr Steven′s view, good for global growth.

To quote: “Cheaper natural resources and energy is actually good for global growth. So I′m a bit reluctant, I must say, to get too pessimistic about the global outlook on that score.”


On the domestic economy: It′s good! We need to improve our terms of trade and our politicians need to start talking the real talk on how we are to collectively afford some of the expensive initiatives the Australian public want, but unemployment is manageable, inflation is controlled and our credit rating remains great.

To quote: “I guess what we′re trying to say is let′s have the adult conversation about these things before we get to that day if we possibly can. It would be very disappointing if what we find is we can′t have it until we are in a crisis.”


On the term” income recession”: It′s just arithmetic!

To quote: “The use of the term “income recession”, I think, is the latest inventive way of using the R-word, to find an adjective to put in front of it. The arithmetic is such that it wouldn′t matter how fast the economy was growing. If you get a big enough fall in the terms of trade over two quarters you will be able to say we′ve got an income recession. That′s just arithmetic. More substantively, what′s really is happening is the purchasing power of Australians over foreign goods and services that result from what we export has gone down… The economy is not in recession, it′s not contracting, we′re not having hundreds of thousands of jobs lost over a year. We′re not growing jobs quite as quickly as we want to, but we′re not in a recession.”

You can read the full transcript of the interview here.

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