Finance Finance News Reserve ‘won’t intervene’ on Aussie dollar

Reserve ‘won’t intervene’ on Aussie dollar

Glenn Stevens
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Glenn Stevens is confident the Australian dollar will fall over time and he is not contemplating intervening to bring the currency down.

Indeed, the Reserve Bank governor says it is hard to imagine the current circumstances facing the economy will persist, that is that the “animal spirits” of business never recovers, non-mining investment stays weak indefinitely and the exchange stays this high.

“I would put that at a very low likelihood,” Mr Stevens said on Wednesday.

Wages growth at record low
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Mr Stevens and his economics team faced their twice yearly grilling by the House of Representatives economic committee in Brisbane.

In his opening statement, Mr Stevens said the RBA expects economic growth will be around two to three per cent, but will probably below its long term trend in the near term.

He said this will be disappointing to many people given monetary policy is very accommodative with the cash rate at a 50-year low of 2.5 per cent and widely expected to be held close to these levels for some time yet.

He hosed down speculation that it has recently considered an interest rate hike.

“Despite speculation… we haven’t thought about raising rates anytime lately,” he said.

“I think that should be reasonably clear.”

The RBA’s cash rate has sat at 2.5 per cent since August 2013.

He said there has been some improvement in employment growth this year and some leading indicators have turned up.

“You wouldn’t call them strong but they seem … (to be) getting better,” he said.

“Prudently I’d say it will be a while yet before we can expect a sustained reduction in the employment rates.”

The jobless rate rose to a 12-year high of 6.4 per cent in July.

Inflation should be consistent with the two to three per cent target bank over the horizon relevant for monetary policy.

“The removal of the price on carbon will lower inflation temporarily over the coming year,” Mr Stevens said.

But he said he doesn’t know what will spark a sustained fall in the Australian dollar even though most factors suggest it should go lower.

“It’s going to be pretty surprising if it remains this high over a very long period,” he said.

Asked if he is ready to intervene to push the currency lower, Mr Stevens said: “I’ve said in the past that it is a remaining part of the tool kit, if it was useful.”

One obstacle is the continued foreign demand for the currency.

“There has a big wall of money coming in, and you’d have to be prudent in thinking how effectively you’d be able to stand against that,” Mr Stevens said.

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