RBA’s Debelle Says Aussie’s Rise ‘Not in Line With Fundamentals’Ben Schenkel
The Australian currency’s appreciation hasn’t tracked economic fundamentals, said Guy Debelle, assistant governor for financial markets at the Reserve Bank of Australia.
“In Australia’s case, the issue is exchange-rate appreciation is not in line with fundamentals,” Debelle said yesterday at an International Monetary Fund conference in Washington. The problem for Australia and other smaller economies is that external “financial factors” are driving up currencies, he said.
A persistent period of such misalignment can cause Dutch Disease, Debelle said, referring to the Netherlands’s experience of a surge in growth in its energy industry that drove up the currency and hurt manufacturing. Australia’s dollar was the best performing Group of 10 currency last month, hurting export-related industries.
An Australian government report released yesterday in Sydney showed the number of full-time jobs in October declined by 27,900, the most since June 2012, the statistics bureau said. The jobless rate held at a revised 5.7 percent.
Australia’s dollar bought 94.53 U.S. cents at 9:07 a.m. in Sydney, compared with 95.55 cents yesterday.
The RBA left its benchmark rate unchanged earlier this week as Governor Glenn Stevens intensified his language on the exchange rate, warning the currency was “uncomfortably high” and a lower level would be needed to achieve balanced growth.
Gross domestic product expanded 2.6 percent in the second quarter from a year earlier, little changed from the 2.5 percent expansion in the first three months of the year, government data compiled by Bloomberg show. Year-on-year growth averaged 3.7 percent last year.
Debelle was a discussant at an IMF conference recognizing the economic contributions of former Bank of Israel Governor Stanley Fischer. The panel on which he spoke reviewed a paper on capital controls and exchange rates.
Debelle said the U.S. Federal Reserve’s pursuit of an “extremely expansionary monetary policy, which may be completely justifiable from the U.S.’s perspective,” can create problems for smaller economies.
“Even if the global portfolio reallocation is small from the U.S. perspective, it can be very large from the point of view of a small open economy,” he said. “Some have said that isn’t a stronger U.S. just good for the rest of the world? And just, basically, suck it up, sunshine.”
The RBA on Nov. 5 left the cash rate target at a record-low 2.5 percent. In a statement after the decision, Stevens said growth that’s “a bit below trend” and a rising unemployment rate are “likely to persist in the near term” as the country adjusts to less mining investment.
Debelle called the nation’s experience a “boom with gloom.”
“Domestic investors in Australia are being completely depressed throughout this whole period,” he said. “So we’ve had this interesting balancing act of telling foreigners, actually, things aren’t quite so good at the same time as trying to tell our domestic citizens, actually, they’re a helluva lot better than they think they are.”