Reserve Bank of Australia Governor Glenn Stevens said there may not be a seamless “handover” from mining to other drivers of economic growth, according to an interview published today in the Australian Financial Review.
“We’re not going to be able to absolutely guarantee seamlessly every handover from one source of demand to another,” he said, according to a transcript published on the newspaper’s website. Stevens expects non-mining investment to pick up, although it may be a slower process than the RBA wants. In the meantime, there are limits to what the central bank can do to “fine-tune” the economy.
“If it is a bit slower to come through, it doesn’t make sense to stoke up other things in some effort to overly fine-tune a short-term path,” he said. “We’ve got to recognize that monetary policy has limits.”
The RBA cut its benchmark interest rate by a quarter percentage point to 3 percent on Dec. 4. In the minutes of that meeting, published yesterday, it said that mining investment may be close to peaking.
“Further confirmation that the peak in resource-sector investment was near, and that the short-term outlook for non-resource investment remained subdued, indicated that there was a case for the board to provide that support,” the minutes said.
Stevens said in the interview that the Australian dollar “does seem to be a bit on the high side at the moment.” The currency has strengthened about 55 percent against the U.S. dollar in the past four years.
He said the RBA is “wary of” the risk of low rates stoking asset prices. If you try to “‘compensate for a very high exchange rate with cheaper, lower interest rates,” that can lead to an “asset credit buildup,” he said.
“So we’re mindful of that, I don’t really think we’re seeing that though at the present time,” Stevens said.
On inflation, Stevens said there are “still some lumps” coming through in the headline numbers. That will push the rate above 3 percent “briefly in another quarter or two, but in trend terms we’re around what we want to be.”