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Monday, 22 March 2004
Page: 26733

Mr HAWKER (12:32 PM) —On behalf of the Standing Committee on Economics, Finance and Public Administration, I present the interim report of the committee entitled Review of the Reserve Bank of Australia annual report 2003, together with the minutes of proceedings. In August 1996, the Treasurer and the Governor of the Reserve Bank, Mr Ian Macfarlane, agreed that the governor would appear before the House economics committee twice each year to report on the conduct of monetary policy. The public hearings are the only occasions on which the governor is obliged to publicly answer questions about bank policy, including on interest rates. The hearings have therefore played a valuable part in increasing community understanding of the Reserve Bank's role.

This report is the first in the committee's review of the bank's current annual report. In support of the review, the committee conducted a public hearing in Brisbane last December. The hearing was well attended by the public, students and others and, as always, attracted considerable interest from the financial markets and the media. The hearing was held at an interesting time for Australian monetary policy. The value of the Australian dollar was rising rapidly, household debt had increased to an all-time high and there was continued growth in the Australian economy. Just before the hearing, the Reserve Bank increased interest rates twice—in November from 4.75 per cent to five per cent, and in December by another quarter of a per cent. These were the first increases in 17 months. As reasons for the increases, the bank cited improving conditions in Australian and world economies, the possibility of rising inflation once the effects of the current high exchange rates faded and continuing expansion of domestic credit. Mr Macfarlane defended the rises at a time when other countries are holding their rates steady by pointing to the strong growth of Australia's economy compared to other countries. He put it in the following terms:

... I know which one I would prefer to have—a good healthy economy with normal interest rates, rather than a sick economy with low interest rates.

Much of the focus of the Brisbane hearing was on the decision to increase rates this time and the tension between the rising exchange rate and the rapid rise in household debt when determining monetary policy settings. Happily, pressures on both these fronts seem to have eased slightly since the hearing. The exchange rate for the Australian dollar has recently retreated from the highs of US80c, and figures released last Tuesday show the biggest one-month decline in investment property loans since 1991. The committee has long been concerned about the high level of speculative investment in housing. The recent data would appear to confirm Mr Macfarlane's judgment at an earlier hearing that `a degree of commonsense' is finally returning to the housing market.

On other matters, an ongoing issue is whether voting at the board's meeting should be disclosed. In Brisbane, Mr Macfarlane asserted that disclosing voting patterns would place undue pressure on board members to be advocates for their particular industry sectors rather than making decisions for the economy as a whole. The committee has not recommended any changes to the composition of the board or publication of its deliberations.

Reform of the payments system has been a priority area for the Reserve Bank in recent years. In the area of credit cards, reforms which came into effect recently have achieved an almost 50 per cent reduction in interchange fees for Bankcard, MasterCard and Visa. The bank advised that it is now monitoring the flow-on of these savings to merchant service fees, and the committee will ask for an update at the June hearing.

In their previous report, the committee noted their concern with the apparently high level of interchange fee applied to BPay. We expressed the view that the bank should undertake an immediate review of this fee. The bank advised that it intends to conduct a thorough study in order to determine whether the current BPay interchange fee is reasonable or whether there should be a fee at all. The committee look forward to the conclusions.

Finally, I would like to thank all committee members—particularly the deputy chair, the member for Chisholm—for their active participation in these important public hearings. I would also like to thank the Governor of the Reserve Bank, Mr Ian Macfarlane, and his staff and to congratulate Mr Macfarlane on his recent appointment as a Companion of the Order of Australia. Also, I would like to thank the committee secretariat, particularly Russell Chafer, for their professional support, as always, in the work that we do. In conclusion, the hearing in Brisbane again demonstrated the value of the committee's hearings with the Reserve Bank, and we look forward to our next hearing in Sydney on 4 June.