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Economics analysis with Michael Rowland -

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Economics analysis with Michael Rowland

Broadcast: 16/10/2009

Reporter: Leigh Sales

National correspondent Michael Rowland joins Lateline to discuss this week's economic debate on how
best to sustain Australia's recovery.


LEIGH SALES, PRESENTER: The national economic debate switched very firmly this week to how best to
sustain the recovery. Our regular economics correspondent Stephen Long is on leave this week, so in
his place I was joined a short time ago by national correspondent Michael Rowland.

Michael, the Reserve Bank Governor Glenn Stevens has made it clear that the RBA will be pulling the
lever on interest rates fairly quickly in the coming months. Just how keen is he to tighten
monetary policy?

MICHAEL ROWLAND, REPORTER: Well, Leigh, to steal a phrase popular with economists, he's very keen
to get that punch bowl away before the party gets out of hand. He's made no compunction that he
wants to raise rates sooner rather than later, just as he had no compunction about lowering rates
to emergency levels of 3 per cent. Now the big challenge for Glenn Stevens is to calibrate that so
that he sustains this economic recovery and also meets his other obligation of keeping inflation
under control, while also not snuffing out a recovery that is still very much in its early stages.
So, expect to see some careful deliberation by the Reserve Bank board when it meets next on
Melbourne Cup Day, but there's feverish speculation in the markets that the Reserve Bank is so keen
to put its stamp on this recovery, so keen to wield the powerful lever of monetary policy, that the
next rate could be a biggee in the form of half a per cent, which will certainly underscore Glenn
Stevens' determination to get the recovery on track, but will certainly dampen celebrations on
Melbourne Cup Day.

LEIGH SALES: Indeed. The expectation of higher rates is certainly putting a rocket under the
Australian dollar. What's the likelihood of it reaching parity with the Greenback?

MICHAEL ROWLAND: Very likely. In fact a lot of currency strategists say that it could exceed parity
and get to, say, $1.10 - $1.05, $1.10 over the next six months. Investors have been piling into the
Australian market, Leigh, over the last, certainly in the last few weeks, fuelled in large part by
all the suggestions from Reserve Bank figures that rates were on the way up. Now, the Aussie
dollar's climb is also a by-product of what is still a very sick Greenback. Investors are deserting
the American currency. Of course interest rates in America are at those historic levels of close to
zero and they're not going anywhere anytime soon. So, expect to see the dollar increase its climb,
certainly over the next few months. It's risen about six cents in the last two weeks alone, which
in foreign currency terms is lightning quick speed. So, the dollar's climb is obviously gonna be
great news for those wanting to go out and buy plasma TVs from China for Christmas, but it's going
to be diabolical of course for exporters who are seeing their margins and their profits deteriorate
as the dollar increases.

LEIGH SALES: And finally, we're about to hear a bit more from Rupert Murdoch about his
controversial plan to charge people for online content.

MICHAEL ROWLAND: Yes, in a few hours Rupert Murdoch will front the news corporation annual general
meeting in downtown Manhattan. Now, having covered these events for the last four years, they can
be pretty entertaining affairs. Rupert'll be asked about everything from News Corporation's paltry
dividend payments to the level of sex and nudity on Fox TV. But of course the big issue is going to
be just what he has to say about his bold plan to make people pay to look at News Corporation
websites, be they The Australian or the Daily Telegraph here in Australia, The Times in London, The
New York Post in New York. A lot of media watchers are sceptical that he's going to encourage
people to pay for something that many have enjoyed for free for so long.

We could also see a response from Mr Murdoch to the rather free character assessment he got from
Mark Scott, the ABC's head, this week. Mr Scott of course likened Mr Murdoch to an emperor
frantically trying to reserve his empire in this fast-changing digital world. Mr Murdoch might use
the opportunity to hit back there, so we are awaiting his comments, as we always do, with
tremendous interest.

LEIGH SALES: I'll be looking forward to learning all about that when I wake up in the morning.
Michael Rowland, thank you very much.