RBA’s Stevens Says Important to Keep Capital Markets Credibility

  • AAA rating can help shore up confidence in Australian assets
  • Important to consider form foreign investment takes, he says

Reserve Bank of Australia Governor Glenn Stevens said it’s important for the nation to maintain credibility and confidence in its capital markets, and retaining a top credit rating is one way to measure that.

“For 200 plus years, we’ve imported other people’s capital and we’ve grown rich by doing that,” Stevens told The Australian newspaper in an interview published Tuesday. “We want to keep doing it and you need to maintain confidence and credibility in order to do that.”

In July, S&P Global Ratings cut the outlook on Australia’s AAA credit rating to negative from stable as it warned the prospect of fiscal-policy gridlock could thwart government attempts to rein in a budget deficit.

Australia has joined the developed world in struggling to generate sufficient inflation to meet its target, and the central bank has cut interest rates to a record-low 1.5 percent to encourage hiring and support growth. Stevens, who will step down as governor in September and be replaced by his deputy Philip Lowe, said that foreign investment remains important for the nation -- though it’s worth considering what form it takes.

“Australia wants to be open to foreign capital,” Stevens said. “Foreign capital that builds new assets, like some of the capital that funded the mining boom. That’s one thing. Foreign capital that buys up the existing assets, I’m not saying that we should be closed to that, but that’s not creating new capital for the country.”

Stevens noted that Australian assets are attractive to global investors because they have relatively high yields, though they’re low by historical standards.

“Infrastructure assets, commercial property that yields 5 or 6 percent, which is by historical standards, a low return for investors in this country,” he said. “But if you’re sitting in Frankfurt or Tokyo or New York looking for yield, that actually, probably, looks pretty attractive.”

Stevens also said that the global economy is “probably as ready as it ever is and can be” for the next U.S. Fed rate increase, and that he doesn’t see “any reason why the second one, whenever it comes,” won’t go as smoothly as the well-broadcast first increase in December.

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