RBA boss Glenn Stevens pushes need for surplus amid NDIS, Gonski
This article was written by The Australian
POLITICAL commitment to return the federal budget to surplus will be even more important as costly education and disability initiatives begin to take their toll on public finances, Reserve Bank of Australia governor Glenn Stevens has warned.
In a speech in Brisbane today, Mr Stevens emphasised the importance of a “principled and consistent” approach to policymaking across the political divide and of maintaining a commitment to “fiscal responsibility”.
“The importance of that commitment will, if anything, be heightened in the future, given the significant challenges exist over the medium term in funding government initiatives that the community appears to want” the central bank governor said.
Since the global financial crisis the Labor Government has presided over five large budget deficits, variously blaming weak revenues and the high exchange rate for its failure to meet repeated commitments to return the budget to surplus. Most recently, at the budget in May, then-Treasurer Wayne Swan forecast that the country would be back in the black in 2015-16 with an $800 million surplus.
“There remains a strong commitment to fiscal responsibility in Australia across both side of politics even if there are different views about how to achieve it” Mr Stevens said today.
He hinted that the central bank would cut interest rates further if necessary to support the economy as it transitioned from the mining investment boom.
"We will be able to continue to do our part, consistent with our mandate, to assist the transition in sources of demand that is needed," Mr Stevens said. "We will do what can reasonably be done."
He qualified the comments by saying they weren't intended as a steer on future interest rate moves. Still, the Australian dollar slumped as traders bet that more rate cuts were in the pipeline.
The remarks came a day after the central bank resisted cutting interest rates beyond their current record low after a weakening currency has in recent weeks helped spur weaker parts of the economy such as manufacturing whose competitiveness had been dented.
The central bank left its benchmark cash-rate target at 2.75 per cent for the second month in a row after the Australian dollar slumped more than 10 per cent against the US dollar since May, falling to a nearly four-year low.
The Australian dollar declined nearly half a US cent following Mr Stevens' remarks today, falling to US91.08 cents, its lowest point since September 2010.
The Reserve Bank of Australia has cut rates seven times since late 2011, hoping that lower borrowing costs will help stimulate weaker parts of the economy by boosting consumer spending on activities such as shopping and home building.
Boosting confidence among businesses outside the mining industry, and encouraging them to invest, will be an important part of the rebalancing the resource-rich economy needs, Mr Stevens said Wednesday.
"We are talking here about confidence that the future will be characterised by growth, that there will be customers for products, that innovations are worth a try, and so on," Mr Stevens said. "That confidence seems pretty subdued right now."
Mr Stevens said he was surprised the exchange rate hadn't corrected sooner after a steep fall in commodity prices in recent times, and said the currency will likely continue to weaken if the economy slows further.
"If the economy 'needs' a lower exchange rate, it will probably get it," he said.