In a recent speech, Mr. Philip Lowe, the governor of the Reserve Bank of Australia (RBA), made the following remarks after the latest round of a cut in the policy rate:
…over recent times I have been drawing attention to the fact that, as a nation, there are options other than monetary easing for putting us on a better path.
One option is fiscal support, including through spending on infrastructure… It is appropriate to be thinking about further investments in this area, especially with interest rates at a record low, the economy having spare capacity and some of our existing infrastructure struggling to cope with ongoing population growth.
Another option is structural policies that support firms expanding, investing, innovating and employing people. A strong, dynamic, competitive business sector generates jobs. It can help deliver the productivity growth that is the main source of sustainable increases in our wages and incomes. So, as a country, we need to keep focused on this.
To repeat the point, it is important that we think about the task ahead holistically. Monetary policy does have a significant role to play and our decisions are helping support the Australian economy. But, we should not rely on monetary policy alone. We will achieve better outcomes for society … if the various arms of public policy are all pointing in the same direction.
The reaction of Mr. Josh Frydenberg, the Australian Treasurer was quite different. He was unwavering in the current government’s electoral pledge to attain a budget surplus rather than engaging in a fiscal stimulus – at least that is how media reports put it. The RBA and the Australian Treasury were singing different tunes against a background of the slowest growth rate of the Australian economy since 2009.
It now appears that the RBA governor has been cajoled into singing from the same hymn sheet. He seems to be saying, ‘she’ll all right mate’. Of course, he adopted a bland style, as in the following observations, but the intent was clear (let us not rock the boat):
Thank you, Treasurer for the discussions today. I agree 100 per cent with you that the Australian economy is growing and the fundamentals are strong. The outlook is being supported by our lower interest rates, by your tax cuts, by higher levels of investment in infrastructure, by a pickup in the resources sector and the stabilisation of the housing market in Sydney and Melbourne. But I don’t think we should forget that more Australians have jobs today than ever before in Australian history. That’s a remarkable achievement. And I also agree with you that a priority is to make sure that Australia remains a great place for businesses to expand, innovate, invest and employ people and I’m sure we can do that.
Well, does the RBA really have independent views, despite central bank independence?