In a recent poll, only one in 10 Australians could name the governor of the Reserve Bank of Australia. Glenn Stevens gives the impression he is sorry it is that many.
In person, Stevens is rather more animated than in his deadpan public appearances. But self-effacement is seldom far away, accentuated by the well-thumbed copy of the New American Standard Bible on the side table of his unostentatious 12th-floor office at the bank’s Martin Place headquarters.
Given that financial market participants pore over every nuance in every speech he gives, Stevens explains, he must be “prepared to be boring”.
Does he find this difficult? “Thanks to a lifetime of training and personal inclination,” he says evenly, “I’m a natural.”
Yet it’s a constant struggle, for the work the RBA does has never been more . . . well, interesting. The cash rate, on which its directors brood the first Tuesday of every month, has become the most fetishised figure in the pageant of Australian politics. In the week of the board’s June meeting, which finally cut the rate by 25 basis points, metropolitan dailies published no fewer than 1685 articles mentioning the bank.
Ahead of this Tuesday’s meeting, television crews will begin staking out Martin Place from 6.30am in the hope of filming a director or officer arriving; the rate’s announcement will be preluded on Sky News by a countdown.
Nor is this merely a media idée fixe: Paul Keating and John Howard blamed the bank directly for their election defeats, while Stevens’s relations with Treasurer Wayne Swan have at times been decidedly wintry.
In the 16 years since it was formally granted independence, the bank has become probably our most powerful and credible public institution, with a track record second to none in the world.
“What people sometimes fail to recognise is how different the last 20 years have been to the 20 years before them,” says historian Selwyn Cornish, author of the forthcoming third volume of the RBA’s official history.
“From the early 1970s to the early 1990s, we had inflation running at times as high as 20 per cent, unemployment on two occasions just short of 11 per cent, and five recessions. Since then we have negligible inflation and close to full employment. The Reserve Bank is not the only reason for that, but it’s arguably one of the main reasons.”
Central banking, observed the bank’s first governor, Herbert Cole (Nugget) Coombs, is a “strange profession little understood by members of the public whose interests it exists to protect”. And so the RBA remains: constituted under 53-year-old statutes; an old-fashioned, strongly hierarchical, mainly male mandarinate in an increasingly rancorous democracy; the epitome of gradualism and continuity in an Australian governance terrain of creaking portfolios and mushroom agencies with constantly changing names and personnel.
Stevens, his deputy Phil Lowe and six assistant governors total more than 200 years at the bank; the bank’s previous secretary retired last year after a 48-year career. It’s all very collegial, quite comfortable, and library-quiet.
“The bank’s a very civil institution,” says Stevens’s predecessor, Ian Macfarlane.
“People don’t shout at each other. People don’t stab one another in the back. There’s no plotting or anything like that; it’s really a very easy place to manage,” he says.
Reversing the pattern usually ascribed to bureaucracy, the more powerful the RBA has grown, the more concentrated it has become: from its peak about 30 years ago, its headcount has shrunk more than two-thirds, from a peak of 3500 to barely 1000.
No point in even reading it. Ridiculous claim. This scum pit of a country is run by mega mortgage mugs, specufelchers, the media and the banks.
stinkbug omosessuale Frank Castle is a liar and a criminal. He will often deliberately take people out of context and use straw man arguments. Frank finally and unintentionally gives it up and admits he got where he is, primarily via dumb luck! See here Property will be 50-70% off by 2016.
"I believe banking institutions are more dangerous to our liberties than standing armies" Thomas Jefferson.
Enjoy The Ride!
The case for individual freedom rests chiefly on the recognition of the inevitable and universal ignorance of all of us concerning a great many of the factors on which the achievement of our ends and welfare depend. It is because every individual knows so little and, in particular, because we rarely know which of us knows best that we trust the independent and competitive efforts of many to induce the emergence of what we shall want when we see it. Humiliating to human pride as it may be, we must recognize that the advance and even the preservation of civilization are dependent upon a maximum of opportunity for accidents to happen.” ― Friedrich A. von Hayek
"I, on the other hand, am a fully rounded human being with a degree from the university of life, a diploma from the school of hard knocks, and three gold stars from the kindergarten of getting the shit kicked out of me." Blackadder.
"Give me control of a nation's money and I care not who makes it's laws" — Mayer Amschel Bauer Rothschild
He does? Don't you recall the media, acting on behalf of retail, mega mortgage mugs and specufelchers pressuring the RBA to reduce rates or when he raised rates they squealed like pigs?
Don't think so. He is their bitch. They will force the RBA to go to ZIRP if need be.
Those in control of the nation's money had everyone by the nads long ago when the boom was underway.
stinkbug omosessuale Frank Castle is a liar and a criminal. He will often deliberately take people out of context and use straw man arguments. Frank finally and unintentionally gives it up and admits he got where he is, primarily via dumb luck! See here Property will be 50-70% off by 2016.
He does? Don't you recall the media, acting on behalf of retail, mega mortgage mugs and specufelchers pressuring the RBA to reduce rates or when he raised rates they squealed like pigs?
Don't think so. He is their bitch. They will force the RBA to go to ZIRP if need be.
Those in control of the nation's money had everyone by the nads long ago when the boom was underway.
The RBA has generally been true to their policy regarding inflation and cash rate. We have significantly lower unemployment than most places. A cash rate similar to Canada may be on the cards at some stage but who cares? I don't think Stevens is a bitch. He is doing his job.
APF - a place where serious people don't take themselves too seriously. There's nothing else like it.
Read the whole article and forget the emotion of the headline. It's actually got some great stuff in it around the history of how monetary policy has been conducted in Australia. It even says Milton Friedman visited Martin Place twice! :-)
For Aussie property bears, "denial", is not just a long river in North Africa.....
Listen, I know I have already posted about this below, but let me expand on the observation. As a literary effort, I think that Gideon Haigh's feature in the AFR today is the best I've read on the RBA. Gideon came and spoke to me about the Bank, and we ended up chatting for a couple of hours. A handful of my own comments probably got projected in the text. It is truly a delight to read Gideon, and he has quickly navigated some very rugged terrain. And I think he has more to substantively contribute on the subject. Gideon's feature today was by design historically orientated. He only briefly touched on the contemporary debates. One of the four biggest media brains in the game--Michael Stutchbury, Chris Mitchell, Alan Kohler or Mark Scott--should, I would humbly suggest, commission Gideon to more exhaustively parse these issues. It is undoubtedly in the community's interest. I've raised most of the following questions with Gideon before, but I will sketch them out again to remove any doubt (in no particular order of priority):
1. Does the complexion of the RBA board, and the appointment process, engender inherent conflicts in its decision-making practice? Are their superior alternatives?
2. How does one properly define the RBA's financial stability mandate, and where are the boundaries that require consultation with its political masters? (The RBA's latest Statement on the Conduct of Monetary Policy creates new linkages between the financial stability and monetary policy responsibilities of the Bank, which in turn lend support to the idea that the RBA can use interest rates to lean against coincident asset price and credit booms that are not, in the Bank's judgement, warranted by fundamentals.)
3. What exactly is the RBA's monetary policy goal (it is not addressed in the open-ended 1959 Act): are they a flexible, inflation-targeting central bank, as they claim, or do they have a 'dual mandate' in the Fed sense (and not insofar as the unemployment rate is a key forecast variable for core inflation, which is often how the Bank tries to cling to the dual mandate in political forums where it resonates as being more publicly palatable than a singular and seemingly callous inflation target)?
4. How does one rationalise the RBA's present day capacity to, in extremis, modulate fluctuations in the exchange rate? How can the RBA possibly have better insight than the collective wisdom of one of the most liquid and sophisticated wholesale markets on the planet? (I am not personally opposed to this function, but believe it needs fleshing out. The RBA is also the first to admit that it cannot forecast the currency.)
5. What are the magnitude of the taxpayer subsidies that the RBA supplies to the banking system via its manifold "liquidity facilities"? Should these be more fully priced (eg, the extraordinary new Committed Liquidity Facility the RBA has created to enable Aussie banks satisfy Basel III)? Does the RBA support the idea of pricing the currently free deposit guarantee the banks receive?
6. How can the RBA distinguish between insolvent banks and illiquid banks given the definition of insolvency under the Corporations Act, and, if it cannot, why obfuscate the distinction, as central bankers (and the RBA) frequently do? Why not simply recognise that the business of retail banking involves intrinsic flaws--namely, asset-liability mismatches--that require a public liquidity provider, and insurer, of last resort?
7. Does the transfer of senior human capital from the Treasury and RBA to the boards of the large listed banks introduce a Washington-style dysfunction that impedes the practice of independent policymaking and prudential regulation (we currently have Ted Evans, Ken Henry, and Ian MacFarlane sitting on three of the four major bank boards)?
I guess they are some off-the-cuff issues to kick Gideon, or a suitable successor, off. And don't get me wrong: I am a big fan of the RBA's.
Today marks the end of the first seven-year term of Reserve Bank of Australia Governor Glenn Stevens. He was reappointed for a further three years back in April by then Treasurer Wayne Swan. This was a glowing endorsement of the way Stevens has run the Bank and conducted policy in the most powerful economic position in the country.
In what may yet prove to be an important issue after the Abbott government, which will be sworn in tomorrow, Treasurer-elect Joe Hockey failed to endorse the reappointment of Stevens, accusing Swan of “severely compromising well-qualified candidates for senior independent regulatory positions”. Hockey accused Swan of “political game playing” even though he had no express examples why Stevens was not the best person for the role, nor did he offer any alternative names for the role.
Whatever these political machinations, it is worth looking at Stevens’ record over the seven years he has been governor.
It is difficult to find any qualified observer who would have anything but fulsome praise for the way Stevens has managed the policy settings over the last seven years, which has included a period of near global depression, a huge and unprecedented swing up then down then up and now down in the terms of trade.
When Stevens became Reserve Bank governor in September 2006, the annual inflation rate was 4 per cent with the underlying measure around 3.25 per cent. The economy was overheating, fueled by the first phase of the mining boom, severe capacity constraints brought on by a chronic under spending on infrastructure and a government consumption spending spree that was adding to inflation as private sector demand surged.
In his new role, Stevens hiked interest rates in November 2006 but then held off hiking again until August 2007, being blind-sided by a couple of low inflation results that turned out to be rouge numbers. With inflation accelerating towards 5 per cent, Steven had no option but to hike again in August 2007 and he followed up with three more hikes by March 2008 when the cash rate hit a now unthinkable 7.25 per cent. Such was the inflation mess inherited that Stevens was hiking rates when banks, housing and the economies in the US and UK were collapsing.
Not long after this, inflation fell and the world economy went into a tailspin.
This near depression was the true test of Stevens’ pragmatism and ability to react in a time of crisis. After a baby step 25 basis point cut in September 2008 when the global slump was unfolding, the collapse of Lehmann Brothers a few weeks later and the risk of economic depression saw the next four Reserve Bank meetings cut rates 100, 75, 100 and another 100 basis points in succession as the Bank worked with the government to fight the risk of not only a recession – which seemed certain – but something much worse.
In concert with the fiscal stimulus measures from the government, this monetary policy easing and sharp depreciation of the Australian dollar saw Australia avoid recession, even though the unemployment rose to a peak of 5.9 per cent in June 2009. This was a staggering success and against all expectations, including those of Stevens himself.
As the success of the policy stimulus became evident and as China and commodity prices recovered from the free fall, Stevens then shocked the market with the start of an interest rate hiking cycle in October 2009. Over the next 13 months, the central bank hiked on six more occasions meaning that in November 2010, the cash rate hit 4.75 per cent.
By the September quarter 2010, inflation had fallen back below 3 per cent, having spent the prior three years above the top end of the target range. That major error on inflation owes much to Stevens’ predecessor, Ian Macfarlane who seemingly succumbing to the political pressure of John Howard and Peter Costello when he obviously kept interest rates too low for too long.
It is worthy of note that for the past three years, inflation has been within the Reserve Bank target range and Stevens has prevented inflation falling below the bottom of the target range with the current monetary easing cycle which began at the end of 2011.
Stevens ends his first term with inflation within the Reserve Bank target, with the economy growing at 2.6 per cent and he knows there is lots of monetary stimulus in place which will no doubt spark a lift in economic growth to above 3 per cent during 2014. This should see the unemployment rate peak around 6 per cent and then fall back towards 5 per cent over the more medium term.
It looks like another successful policy cycle for Stevens.
Swan appointed Stevens for a further three years from tomorrow and if on September 17, 2016 inflation has remained, on average, between 2 and 3 per cent, if the unemployment rate is 5 point something and the economy has grown close to 3 per cent, as it has for the bulk of the past seven years, he will have continued his tremendous record.
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