RBA Growth Girl Warns Overvalued Aussie Hurting Economy as Stevens Pauses
Incoming Australian central bank board member Heather Ridout aims to bring more attention to the nation’s overvalued exchange rate as she joins the policy debate amid deliberations on lowering interest rates.
“There’s too much froth in the Australian currency,” which economic fundamentals indicate ought to be worth 90 to 95 U.S. cents, Ridout, outgoing head of the Australian Industry Group, said in an interview yesterday. She said “speculative” buying stoked by rate differentials had spurred the local dollar, which traded at $1.0834 at 8:08 a.m. in New York.
Ridout, 58, will bring the perspective of the country’s manufacturers to the Reserve Bank of Australia, which unexpectedly left its benchmark rate at 4.25 percent yesterday. She will also boost its diversity, becoming the fourth woman to serve on the 52-year-old board.
“I’m a growth girl, but I’m not a stupid one,” Ridout said in Sydney. “Sometimes we underestimate our capacity for growth in this country,” she said, adding Australia had been “quite conservative” on the issue.
Investors are pricing in a 60 percent chance the central bank will lower borrowing costs when it meets next month, according to Bloomberg calculations based on cash-rate futures.
Asked if she was a so-called dove, the word used to describe a policy maker who leans toward economic growth over fighting inflation, Ridout agreed she is.
“The market’s perception of her is that she is going to be a voice for the manufacturing industry,” said Sean Keane, an analyst in Auckland at financial advisory group Triple T Consulting and a former head of Asia-Pacific rates trading at Credit Suisse Group AG. “The market will expect that she’ll certainly argue against interest-rate hikes and argue for a more dovish policy stance.”
The Australian dollar, the world’s fifth-most-traded currency, has increased 5.7 percent this year. It soared to $1.0823 yesterday after the central bank defied the forecasts of 24 of 27 economists for a rate cut.
“I do think monetary policy has been given an awful lot of support in Australia by the high dollar and it does need to be factored in,” Ridout said in the interview three hours before the central bank decided against a rate cut. “I’m sure the bank does. But I will be making those points pretty strongly when I sit at that table.”
RBA Governor Glenn Stevens trimmed the nation’s benchmark interest rate by a quarter percentage point to 4.5 percent on Nov. 1 and to 4.25 percent Dec. 6 to help revive household demand and hiring.
Even after the reductions, Australia has the highest benchmark borrowing cost among major developed nations. Policy rates in Japan and the U.S. are near zero, while the European Central Bank has its benchmark at 1 percent.
“We used to be a proxy for world growth, now we’re a safe haven because we’re well regulated,” Ridout said. “I think Australia hasn’t had this argument with itself.”
The so-called Aussie has appreciated 56 percent since the end of 2008, helping contain import prices while hurting the competitiveness of exporters.
“It is very worrying,” Ridout said. “We have to have a big think about the sort of economy that we’ll have if we stay in this range of $1.05 or even $1.10-plus for an extended period of time. It’s very, very tough.”
Ridout, who steps down in April after about eight years as chief executive officer of the Australian Industry Group, said that the nation’s manufacturers are proving “incredibly resilient” and trying to boost productivity to cope with the currency shock. The industry she represented contracted for most of 2011.
“Certainly for 2012 our reports of our members would suggest they expect a softer year than last year, and a tough year,” she said. “But at the same time, they are investing in new technology, they are investing in research and development, and they are renewing their business models.”
Asked about the RBA board adjusting borrowing costs without publicly revealing members’ votes -- an anomaly relative to the standard followed by peers in nations from the U.S. to Japan to Poland -- Ridout said she supported the current process.
“It’s a collegial decision in the end,” she said. “On boards you’re basically all meant to agree and that’s how I operate. I don’t think a proper board would operate saying Mrs. Ridout supported it, Mr. so-and-so didn’t, the governor said this -- I don’t see much purpose in that.”
Ridout will bring to three the number of women on the RBA’s nine-member board, joining Jillian Broadbent and Catherine Tanna. The central bank’s imbalance of women mirrors the boardrooms of Australia’s biggest public companies, where about 13 percent of directors are female.
Ridout said that while representation remains low in corporate Australia, it is improving as companies recognize the benefits.
“Fifty-percent plus of the population are women, 75 percent of the buying choices on cars, etcetera, are made by women, so why you wouldn’t have this diversity of view represented around your board table confounds me,” she said. “It’s changing but there’s still an awfully long way to go.”
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