“We don’t rule intervention in or out”: Dr Philip Lowe. Photo: Jenny Evans
A senior RBA official has reiterated governor Glenn Stevens’ comments that the central bank could intervene to drive the Australian dollar down.
Speaking at a productivity conference in Sydney, RBA deputy governor Dr Philip Lowe said intervention has always been an option.
“We don’t rule intervention in or out, that has been a long-standing practice,” Lowe said, adding the threshold for intervention is high.
The Australian dollar has fallen in recent weeks after some jawboning from the RBA, with the governor’s comments sending it plunging last week when he raised the possibility of intervening in foreign exchange markets.
As well as his currency comments, Dr Lowe said Australian businesses need to boost efficiency to maintain growth in living standards and could use engineers freed up from mining construction to build more infrastructure.
“We can no longer depend on a rising terms of trade and favourable demographics to make us richer,” Lowe said in the text of a speech to be delivered in Sydney. “If this lift in productivity growth does not take place, then we will need to adjust to some combination of slower growth in real wages, slower growth in profits, smaller gains in asset prices and slower growth in government revenues and services –- in short, slower growth in our average living standard.”
Lowe’s comments echo Treasury’s top economic forecaster David Gruen, who said Australia should brace for the weakest income growth in half a century in the coming 10 years. Gruen said November 21 that to maintain recent income growth levels would require labor productivity growth to average 3.2 percent a year for a decade — something never achieved before.
The Reserve Bank of Australia has cut the nation’s benchmark interest rate to a record-low 2.5 percent as it tries to rebalance growth away from mining investment and toward industries like manufacturing, residential construction and services. That transition has been hampered by the sustained strength of the Australian dollar. Lowe didn’t directly comment on the currency’s level in his prepared remarks that focused on infrastructure and productivity.
“Monetary policy can make a contribution by keeping inflation low and stable so that people can make decisions without having to worry about the distorting effects of high and variable inflation,” he said. “Our medium-term inflation targeting framework — which has been in place for two decades now — has achieved this and we are committed to making sure that we continue to deliver.”
Lowe said that productivity will receive a boost as the nation’s mining boom moves from the employment-intensive construction phase to exports that require fewer workers.
“This creates an opportunity for infrastructure investment to rise as a share of GDP without putting undue pressure on domestic capacity,” Lowe said today. “Such a rise could assist in the necessary rebalancing of the economy and help create the basis for a further boost to our national productivity.”
The RBA’s No. 2 official said infrastructure financing “will be one of Australia’s priorities” when it chairs the Group of 20 next year. Generating political support for changes “that are in the national interest but may disadvantage some sections of the community” is critical, he said. The country is “falling short” in areas of infrastructure including transport, Lowe said.