Speech Summary The Economic Scene
Address to CEDA Luncheon
The speech assesses the current economic outlook and financial conditions from a global and domestic perspective, and considers the related challenges that may lie ahead. Consideration is given to the role that monetary policy can play in addressing such challenges, as well as its limitations. Areas where other policies will be required to improve the economic outlook are outlined. It then highlights behaviours that monetary policy seeks to avoid, such as fostering too much build-up of risk in the financial sector.
The speech discusses how monetary policy can support improvement in the economic outlook, and explains that to boost domestic demand, various sectors of the economy must first be in a position to respond to such measures. The business sector is identified as an area which could lead such an expansion in Australia, by investing in new technologies and innovation going forward.
Moving on, the speech clarifies the limitations of monetary policy, as well as areas in which it should not intervene. It underlines that although monetary policy can create more accommodative funding conditions, so that the financial sector can lend more, it cannot affect other elements that might determine businesses’ appetite to borrow and invest. Additional planning laws, infrastructure and technological change are also identified as areas where other policies – in addition to monetary policy – must be ‘right’ before people will be comfortable taking the necessary risk.
The speech particularly notes that efforts to stimulate economic growth should not promote too much build-up of risk in the financial sector, lest this exposes the economy to ‘nasty shocks’ in the future. It goes on to suggest that the most prudent approach is to avoid such a boom-bust cycle, and notes that further inflating house prices is not the best route to try to achieve a faster reduction in the unemployment rate.