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Monday, 22 March 2004
Page: 26734

Ms BURKE (12:36 PM) —I also rise today to welcome the interim report of the Standing Committee on Economics, Finance and Public Administration, entitled Review of the Reserve Bank of Australia annual report 2003. I want to start my speech by thanking the staff instead of being cut off at the end and never getting around to it. I want to sincerely thank all the staff from the committee—Russell Chafer, Susan Cardell, Ryan Crowley, Katie Hobson and Sheridan Johnson—for the phenomenal work they do, especially when we go on the interstate trips. A lot of work is involved in setting up the hearings and making them happen. I would also like to sincerely thank David Richardson from the Parliamentary Library for his work, because without that I am sure none of us would really know what the hell is going on. So I want to thank Dave for all the work he does.

I want also to thank the Governor of the Reserve Bank for making himself available and to thank his team for the spirit in which they appear before the committee. I have noticed over my five years of appearing with this committee that the governor is becoming far more open and keen to engage in the public debate, and I think at the last hearing we saw him on numerous occasions expanding his comments to us. This can only be a good thing for the transparency and openness of our economy.

The hearing in December came hot on the heels of two recent rate rises that took the cash rate to 5.25 per cent—the first such move in over 17 months. These increases were met with howls of criticism from many quarters, especially from politicians and real estate agents. I am not terribly sure what that says about either profession, but somehow we are now lumped in together. The governor, in his opening address, commented on these criticisms and again tried to make it clear that interest rate rises are not put in place to smooth the housing market. I would like to quote from his opening address:

Two increases in interest rates were made in mid-2002, then there was a 16-month gap to the next two increases. I have explained in previous meetings the reason why this long gap occurred.

It is clear that, despite our best endeavours to explain ourselves, a number of people think that the bank tightened monetary policy to cool down the property market. In fact, I have more than once received unsolicited advice that it would be better for us to explain our action in this way because people could more easily identify with it. The overheated property market is something that people can see around them; it is much more concrete than such concepts as inflation targeting or returning interest rates to normal.

However, such an approach would not be consistent with the truth. For a start, signs of overheating in the housing market were clearly evident through the second half of 2002 and all through 2003, yet the bank did not change monetary policy. It was only when it became clear that good economic growth had returned both globally and domestically that rates were raised.

So the governor has gone to extreme lengths to demonstrate that rates have not risen to smooth the housing market, yet the rate rises have had that impact. There was a great deal of discussion about the impact of the rises on households and the governor's desire to send a message to those speculative borrowers who are purchasing properties as investment instruments.

The warnings that the governor has been sounding about overexposure in the investment market, the influx of apartment developments and dubious lending practices—I cite deposit bonds as one example—have sadly all come home to roost with the collapse of Henry Kaye. The governor's previous statements and his comments at that hearing about the lack of regulation in the property investment market still continue to be ignored, with the federal government trying to shift blame to the states and, sadly, with investors being left exposed. Things urgently need to be done in this area to ensure that there is a regulatory framework for property investors.

The governor would not be drawn on the actual discussions at the board meetings which resulted in the rate rises or on whether the decision to raise rates was unanimous. This again highlights the concern about the lack of openness of the board process. Given the Treasurer's and the Prime Minister's negative comments about the rate rises, and the presence of the Secretary to the Treasury on the RBA board, there is a perception of unease about the board process. Whilst the members of the board who are not from the RBA or Treasury are captains of their respective industries, they are not experts on monetary policy. As we know neither what transpires at board meetings nor the voting intentions of the members, we can conclude only that the debate about economic fundamentals or the forecasting relied on by the board is limited. I mean that there are fundamentally only two people on the board who can actually engage in that level of debate. The governor did state at the hearing that there was no disagreement about forecasting or fundamentals, but he would not expand on that.

Subsequent to the rises, rates have been put on hold, and again that decision was announced with deafening silence. The practice of providing no comment when rates are placed on hold is at odds with an open economy. There has to be a reason why rates are not moved and this should be provided to the market. The governor has now expanded on his notion of natural rates at several hearings. Given that the fundamentals seem to be in place for rates to return to those settings, it seems curious that the governor has not explained why rates remain on hold. The governor was quizzed about the impact of a rate rise of half a per cent on households. While the governor said that he did not believe the impact would be felt by many, he did say that some households would feel it. Again, we need to see more information about the level of household debt.