RBA governor Glenn Stevens is a man with a lot on his mind.
As the head of the central bank of a small open economy with a freely floating exchange rate, large exposure to commodity prices, a massive trade partnership with China, a hole left by the mining investment boom, questions around the accuracy of economic data releases, and a global economic landscape that looks to have shifted down a gear there is a plenty to think about.
So, as has become custom, Stevens has sat down for his annual end of year interview with the AFR to walk through what he’s thinking right now. It’s a long interview so we’ve distilled it down to just the highpoints.
In summary Stevens:
- Thinks the Fed will raise gradually and he’s sanguine about the impact of the Fed tightening on markets.
- Reckons there is more work to do on bankers conduct – Ahem, cough!
- Not sure how China’s economic transition will play out
- Not worried about a China market implosion anytime soon
- Says Australia has handled the growth gap left by the mining boom well
- Believes the dollar is doing it’s job, could fall further given commodity weakness but won’t nominate a level
- Has an interesting working hypothesis that because of where the jobs are being created we might get growth without investment
- Says Australia is not a safe haven and that international investors like buying here because Australia offer yield in a no yield world
- Thinks rates are low but with inflation low they could fall further if needed
- Doesn’t want to dis the jobs data and doesn’t think they are useless. Forgetting last months volatility employment is strong he said
- Thinks low wages are helping employment
- Believes that company hurdle rates are coming down
- Nicely answers the question ‘are dividends out of whack?’ by not answering it but implying they are
- Highlights that even though the terms of trade and iron ore prices are crashing mining is still a significant contributor to the economy
- Believes property prices coming down in Sydney and Melbourne is a good thing and highlights this was important for monetary policy but not predominant
- Thinks the economy will continue to adapt to new challenges and new business models like Uber and Airbnb
- Isn’t sure how the disruptive fintechs will play out but thinks Bitcoin’s blockchain technology was really clever and offers opportunities for disruption
- Believes the big challenge for central bankers around the world is going to be getting off zero interest rates.
- But doesn’t think central banks have seeded the next crisis
- Leaves the question open about bank losses, capital and the bail-in of lenders should Australia ever be hit by an Asteroid