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Monday, 1 December 2003
Page: 23272

Mr HAWKER (12:51 PM) —On behalf of the House of Representatives Standing Committee on Economics, Finance and Public Administration, I present the report of the committee entitled Review of the Reserve Bank of Australia annual report 2002, together with the minutes and proceedings.

Ordered that the report be printed.

Mr HAWKER —by leave—In August 1996, the Treasurer and the Governor of the Reserve Bank 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 concludes the committee's review of the bank's annual report 2002. The committee conducted two hearings in support of the review—in Warrnambool and in Melbourne. As always, the hearings attracted considerable attention from the public and market commentators and were well attended by students keen to hear first-hand the factors influencing the bank in its decisions on monetary policy—that is, official interest rates. The public hearings coincided with a long period of continuing strong economic growth and stable official interest rates at 4 per cent which, at the time of the hearings, had remained unchanged since June 2002. Interestingly, many market commentators were predicting that the next move in interest rates would be down due to a weak world economic outlook. Of course the Reserve Bank in fact raised rates by a quarter of a per cent last month, citing as reasons improved conditions in the international and domestic economy and persistent high levels of credit growth.

Australia's sustained high level of speculative investment in housing was perhaps the most serious issue examined during the committee's review. At the public hearings, the Governor of the Reserve Bank, Mr Ian Macfarlane, noted that there is nothing new about Australians purchasing investment property. However, there have been two substantial changes since the 1980s. The first is the ease with which people can now get finance for investment housing, to the extent that they can make these major decisions `almost impulsively', to quote him. The second is that nearly all of the apartment projects in the current cycle have been presold, meaning that a large proportion of the risk has been transferred from property developers to investors.

At the hearings, Mr Macfarlane expressed the fear that many highly leveraged investors are `just assuming that things will work out'. He further warned that the rapid growth of household credit poses the main domestic risk to the Australian economy. He did, however, suggest that there are signs that `a degree of commonsense' is now returning to the market. This judgment will be a major focus at the committee's next hearing, which is next week in Brisbane.

Our report also notes the rapid appreciation in the value of the Australian dollar in recent times. Prior to the June hearing, the exchange rate had passed through the US66c barrier, representing an increase of some 40 per cent since late 2001. In October, the Australian dollar went above US70c for the first time in six years. The rapid nature of the dollar's appreciation is of concern to many Australian exporters—in particular, the primary industry sector—and the recent increase in interest rates can only add more pressure. This will be further examined next week at the Brisbane hearing.

Reform of the payments system has been a priority area for the Reserve Bank in recent years. The committee welcomes the Federal Court's recent rejection of legal challenges brought by Mastercard and Visa against the Reserve Bank's credit card reforms. Those reforms involve a reduction in credit card interchange fees, the removal of the restrictions on merchants passing on to cardholders the cost of accepting cards and access for new credit card competitors. Also on the payments system, the committee anticipates significant progress in 2004 in reforms of interchange fees in other areas such as EFTPOS and foreign ATM transactions. In our report, we suggest that the banks should undertake an immediate review of the apparently high level of the interchange fee applied to BPay payments from savings accounts.

In conclusion, I would like to thank the Governor of the Reserve Bank, Mr Ian Macfarlane, and his staff for their support for the hearings and congratulate the governor on his reappointment for a further three-year term. Mr Macfarlane's seven-year tenure has coincided with a remarkable period of uninterrupted economic growth and stable interest rates. In light of the recent rise—the first in 17 months—the next public hearing with the bank, in Brisbane, will provide an important opportunity for the governor to elaborate on the reasons for the increase and on the future challenges for monetary policy and related issues. Finally, I would like to thank all members of the committee, particularly the Deputy Chair, the member for Chisholm, the secretariat and, in particular—(Time expired)

The SPEAKER —I call the honourable member for Kingston. I point out to the member for Kingston that the debate is due to conclude at 1 p.m. I do not intend to be absolute about that, but he should be conscious of it.