Craig Thomson (Dobell, Australian Labor 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 2008 (first report), together with the minutes of proceedings.

Ordered that the report be made a parliamentary paper.

On behalf of the Standing Committee on Economics, I have pleasure in presenting the committee’s report entitled Review of the Reserve Bank of Australia annual report 2008 (first report). Mr Deputy Speaker, when it became apparent that the global economic outlook was worsening in September of last year, the Reserve Bank of Australia board took its first steps to reduce the cash rate. Between September 2008 and April 2009 the official cash rate was reduced to six times, a total decrease of 425 basis points since 3 September 2008.

It is clear now that the global economy is in a severe recession. In April 2009 World Economic Outlook, the International Monetary Fund projected that global activity would contract by 1.3 per cent in 2009. The IMF noted that this was the ‘deepest post-World War II recession by far’. Australia’s economy has been impacted by the deterioration in international economic conditions which have substantially slowed growth. The Governor of the RBA in his statement announcing the 5 May rate decision noted that the ‘Australian economy contracted in the latter part of 2008, and this has continued in 2009 to date, with both domestic and international demand weaker’. The governor also noted that monetary policy has eased significantly and that the ‘stance of monetary policy, together with the substantial fiscal initiatives, will provide significant support to domestic demand over the period ahead’.

During the hearing, the committee asked how important it had been for governments, both in the Australian context and globally, to implement various fiscal responses to the global credit crisis and for central banks to loosen the ties on monetary policy. The RBA governor answered that tremendous turmoil and instability in the global financial market and a large contraction of G7 GDP required ‘a response by policy makers to the turmoil itself in order to stabilise the financial system and stop that spiralling down any further’. When asked about the consequences for the Australian economy if the government had not implemented a fiscal stimulus package, the governor stated:

I do not think we would be seeing too many consequences of that right now. They would be coming later. The policy expansion cannot really head off whatever is happening in the economy today; it does not work that fast. But later in the year we are going to be seeing more and more effects of those measures. That is when we would have seen the impact of a different course of action. The economy, I think, would have been considerably weaker than it will be had that course of action been followed.

Clearly, the governor was endorsing in very broad terms the approach that this government took in terms of the fiscal stimulus packages at the end of last year and earlier this year.

The IMF has projected that output in Australia will decline moderately in 2009 before picking up in 2010. While Australia’s economy has slowed, it is the RBA’s view that, comparatively, the economic downturn has not been as severe as in other advanced economies. However, these are the worst global economic conditions seen for over half a century and there is still considerable uncertainty about the economic outlook. It is therefore more critical than ever for the committee to scrutinise the RBA on its key forecasts for economic growth, inflation and employment.

On behalf of the committee, I would like to thank the Governor of the Reserve Bank, Mr Glenn Stevens, and the other representatives of the RBA, for appearing at the hearing on 20 February. They provided thoughtful and very open responses to the questions that were put to them by the committee. The next hearing will be on 14 August 2009 in Sydney. I commend the report to the House.

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