Transcript of Question & Answer Session After the Boom

Hi Morag McKinnon from Reuters. So I think you can guess what I'm going to ask. You briefly made a comment on the Q3 GDP data that came out during your speech, I wonder if you could elaborate a little further what you think about that third quarter figure, it was slightly above market expectations. What might it mean for the outlook going forward from here and also for interest rates, thanks?

Well I could guess that you might ask that. I think you might be able to guess my response. I know the number was 0.9 that's all I know, I guess when I get to the airport after this by then there will be some detailed briefing for me to read, but it's probably just a touch above the numbers that we had embodied in our published forecasts, which I think would be welcome. Let's not overplay the significance that the economy is growing and I think the outlook for continued moderate growth you would still say that's the outlook based on this incremental bit of additional information. But really I can't do any more than that and I have no further guidance to offer, chilling out or otherwise, on interest rates today, thank you.

Thanks Glenn I think that was clear. I have a question from a gentleman on this table.

Thank you Gordon Flake from the Perth US Agent Centre and University of Western Australia. There was a lot of news this week about the possible or likely inclusion of the Chinese renminbi as a global reserve currency, this despite you know earlier this year several unilateral devaluations. I'm curious from your perspective, are there any immediate implications of that for Australia?

Well what's happened is that the IMF as I understand it is in the process of approving the inclusion of the renminbi in a thing called the SDR, special drawing rights, which is essentially a unit of account that the IMF uses for some of its operations. You can't actually go and buy an SDR in the market, it's not an actual currency it's a composite measure of several currencies and I think it's sensible enough to include the RMB in that. The RMB already was a reserve currency let's be clear, we hold a small portion of our foreign reserves in it, and we have done for a little while, and a number of other central banks do as well. I imagine that as time goes on probably the RMB's going to become more important as a currency, China's a very large economy as they continue to liberalise their financial system and their capital account use of the RMB will grow, I would expect. I think the IMF decision is kind of in the groove in that broader scheme of things I don't think it has any particular ramifications for market prices or capital flows in the near-term, that's my own view, time will tell whether that's correct of course.

Thank you.

Lord and Company Patent and Trademark Attorneys here in West Perth. Since 1979 we did experience the boom of the economy during the mining, as everybody else, and we'd like to know now when do you think your personal opinion the next boom will be and will it be a mining or innovation and us turning our intellectual property and so on to work and produce maybe manufacturing special ones from WA and maybe all Australia.

I don't know when the next mining boom will be. I would note that the boom that you've just had I don't think was very well predicted ahead of time. Certainly its magnitude and longevity was underestimated for quite a while. As for a boom in innovation, well one hopes that that will occur, I think there are many issues to do with how Australia turns innovations which arise in the research dimension into commercialised innovations that are successful in business. That's not my field so I can't really advise on how to strengthen that, but it does seem that that is one of the issues we face and I really can't do any better than the material that was displayed on the audio visual earlier, which I'm sure in common with all of you I found very interesting and quite exciting, but I can't really do better than that on whether and when there will be an innovation boom, and as for mining booms in the future there will probably be some. But the timing of that is impossible to say.

Thank you, I'm sure there is a number of different of views of what that boom might be, so table 12 I think back there, yes that gentleman thank you.

Thank you, Governor Stevens, I just wonder if you're surprised that there is no deflation after such an unprecedented boom, and in the event there was, rather than relying on monetary policy must be getting to the end of its tether, have you got any other policy that you would implement if we do go through a deflation period?

Well am I surprised that we're not having a crash in deflation, no, because it's been our intent to avoid that and I think the first thing you do to avoid it you try to minimise the excesses on the way up, which by and large I think we managed to do. That should put you in better shape to avoid the corresponding excesses in the other direction. So I remain as I said of the view that we'll come through this okay. It is true that interest rates are already very low, as low as any of us here have ever seen in our life but if needed, there is more that could be done on that front. Nonetheless I think it is apparent globally that too much reliance is being placed on monetary policy, this is not an Australian comment specifically, it's a global one. There is too much reliance on central banks to lift countries into growth when monetary policy clearly has certainly reached the end of conventional capability in all these other countries with zero interest rates and we need more focus on other policies which might be effective in lifting growth, and this was the main idea that we put in our host year of the G20 in 2014. The G20 additional growth objective which Joe Hockey put onto the global agenda and which remains there, and which was a hallmark of Australia's presidency, and that's about lifting growth everywhere in the world, and none of the measures in the list of 100 plus measures that were enumerated were about monetary policy, they were about other policies. So the point there is that we shouldn't just rely on monetary policy alone in any country to drive growth, other policies actually are ultimately going to be more effective and that's a very important point.

Thank you.

Hi Governor Stevens, Gary Hale from Cisco. A couple of things you had an article in the AFR the other day about investment and innovation and side security areas like that, and we saw this morning the role Israel played and the government in kick starting their start up nation, and the government here in the state who can afford a facility out there but can't build a new building for Scitech. My sense is we're in an opportunity we've come out of the boom for governments to invest and align in whatever this thing we're going to be good at in Australia for the future, what's your sense the role in governments in that and how that's going to play out around innovation in particular?

Well I don't want to buy into whether the government of Western Australia should invest here or in some other thing obviously, I'll duck that, I suppose I'd say that the role of public policy, you can think of there being a spectrum of things that can be done, a lot of it is enabling which I suppose goes to education, R&D funding or concessionality, so there's enabling. There's are we sure that we're not getting in the way of innovation and investment in innovation that might otherwise take place, they're a set of questions that the governments would contemplate there. And I don't think one – I anyway would not rule out on principle governments taking a funding position, almost an equity stake if you like, provided that it's done properly. In a way I suppose, perhaps there's a slight parallel with government involvement in infrastructure. We feel we're short of infrastructure the problem isn't finding the money, the problems to be solved are the governance ones around which projects, I suspect that might well be true in the innovation space as well. It's not for me to say whether it would be sensible or appropriate for a state or a federal government to directly invest, I don't see why you would rule that out of court at the beginning, you'd consider it. But I suspect the funding is probably the smallest of the problems, I suspect there are other more you know tricky issues to solve than that, not insoluble, but to be solved nevertheless.

Thank you Mr Stevens, Jonathon Barrett at the Financial Review. You've previously expressed concern about Sydney property prices. Has that concern been alleviated and if so has it come at the expense of weaker markets like Perth which are also subject to the I guess more strict policy and lending criteria?

I think the measures that APRA took were well calibrated, they're having appropriate effects, and I don't really see much evidence that it's materially affected Perth or other markets in an adverse way. I'm not aware of any evidence to that effect. And I have no further comments on Sydney or other property prices beyond what was in yesterday's Statement.

Thanks.

Despite the expectations of the non-mining industry having increased in investment that hasn't materialised and the government putting mechanisms in to curtail the housing industry, at what levels below the current benchmark would you expect it to become a compelling matter for the Board to review interest rates to come down?

Well I'm not going to speculate on future Board decisions. We've given our view yesterday, and there's no additional guidance so to speak that I'd want to offer. I would offer though the observation that I don't actually think that non-mining business investment or any form of business investment in fact is particularly responsive to interest rates per say, there's no evidence really that it is or has been in the past. I think if and when that pick up in capital spending outside of mining occurs, it will be because businesses in those sectors feel more confident in their future sales and the general state of the economy, it won't be because of some tweak to the cost or availability of credit. Credit's available at low cost if they want it, and actually business borrowing's picking up according to the credit data. But I think it's the broader economic picture that determines the decisions that businesses make about capex spending.

We've got time for a couple more quick questions, we haven't yet had the exchange rate prediction question that I was anticipating. Anybody game enough to see try their arm at asking the Governor's view as to where the Board think the exchange rate might settle over the next 12 months or so?

Why would you think such a forecast is of any value?

Well I think there might be a number of people in the room who think that information might be of value to them actually, those who are selling things in US dollars.

Well so we need it lower for those people and higher for those going on holidays. There's a fundamental insight there, the exchange rate is a relative price.

Forget the internet shoppers for the moment and look at the exporters. Yes two hands going up there, I'll take the one behind first, Patrick.

Thank you Glenn, Patrick Canon's my name from Ipac Western Australia. I'm wondering in 2015 how relevant is the target inflation range of 2 to 3 per cent, how relevant is that in today's market for the Reserve Bank in determining their policy?

It's still relevant. I said in a speech last week that it's the case around the world at the moment that inflation rates being a little below targets is a lot more common than being a bit above and that it's perhaps not as easy as the textbook says it ought to be for a central bank to push inflation up. That having been said though I think for us well our forecast is still that we will be consistent with the target over the next 2 or 3 years. And the inflation targeting framework, it's easily the best framework we've had in the past 50 plus years, there may be a better one, but nobody's come up with it yet, and until they do this is the best framework that we have, it's been effective, it's still fairly effective actually at anchoring inflation expectations which is important. It's still I think proving to be a very useful and important guide for policy setting, so it's still relevant. If there's a better framework let's hear about it, but to date this framework beats all the others we've tried, and we've tried quite a few over the long run and so I think we stick with it until there's something better on offer.

Right one more question I think on table 7 here please.

Good morning Peter from Morgan Stanley. I'd be interested in your thoughts on employment data, in the last 18 months there's been a lot of volatility in the numbers and revisions and we saw a particularly strong number against expectations in the last month, so how does the RBA interpret the employment data on the trend that is currently coming through?

Well there have been some data issues, that's true, I don't want to get into the game of interpreting one month's figures, I think you should take a run of months together. Even before we received that latest one the sequence was a pretty solid one, employment was growing at 2 per cent or more per year, the rate of unemployment at worst was steady, the ratio of employment to population going up, participation going up from low levels admittedly but rising, that was consistent actually with rising job vacancies. We add the extra month's data, well all of that's still true maybe even a bit more true given the strength of the figure. I don't think it's possible to easily dismiss the monthly observation on kind of sampling grounds, but it's one month we should take it with the sequence of other months, and if you do that it's actually a pretty strong sequence over the past year and it's really hard to avoid that conclusion taking all the data together. So that would be my take on the labour market data.

Thank you, and I'm told by John that we have a moment for one last question if anybody has anything. Yes this lady here.

Linda Easterly Murdoch University, thank you for a fascinating talk and interesting insights, I'm going to go back to the question raised by my colleague at Cisco here and ask about the resources boom was very much driven by science technology, engineering and maths, STEM as we now know it, yet a quarter of our kids are giving up this in Year 10 and not pursuing it, whereas our competitors overseas are accepting this challenge and moving forward. Do you think this is an important issue and if so how do you think we should address it please?

Yes I think it's a very important issue and I don't know quite what to do about it because I do interest rates and the best I can tell there's nothing we do with interest rates has any effect on this particular problem or indeed many others. It is an issue and I've read the stuff that Ian Chubb has said over the years, I find that persuasive and so this is a question that I think we collectively as a society have to grapple with, but it's not within my knowledge nor is it my responsibility or my prerogative frankly to kind of dictate or seek to advise on just how you do it. I don't have the answer to that question I'm sorry, I'm sorry to end on a ‘don't know’ note but that's the truth.

Okay well on that case I'll take one more question, the lady on table 9 was itching to ask a question.

Thank you Glenn, Sharon Fay from Clear Perceptions, I'm a corporate psychologist and I pick up on you might not guess what I'm going to ask because I just picked up that you know if the Board had its last meeting in Western Australia four years ago, and if it's another four years, and you'll be long gone, what does that say?

I'm not sure it says anything in particular, the fact that I'll be gone is just ...

Are you going to be gone in four years?

... I'm going to be gone in nine months. The Board – maybe I should just explain - we meet mostly in Sydney, that's where the Bank is, where all the resources, the staff resources are and so on. We meet once a year in Melbourne, and we meet once a year in another state capital and we go around, next year we'll be meeting in Hobart actually which we haven't done before. So on that schedule we'll come back or the Board not including me will come back to WA in a few years' time and I think we find great value in moving around like that it's quite a logistical effort to do things interstate, not least with the time zone change here, but the value is the opportunity to meet as a Board, the local business community, senior leaders and so on, and that's been very helpful over the past couple of days. So it's a very useful thing to do which is why we will indeed come back, what the psychological import is of the four year gap I don't know.

Thanks very much Glenn, it's a slightly more positive note.