this week both Canada and Europe cut
interest rates but reading between the
lines you sense any Cuts rates here is
much further out into the distance you
might even suggest that Australia is on
a different path to those other
economies as the government and the
Reserve Bank try and lock in near record
low unemployment rates keeping people in
jobs it seems is Paramount and that is
understandably important well on Friday
I spoke with the recently appointed
Reserve Bank Deputy Governor Andrew
Hower at Australia's economic Outlook
conference put on by the Australian and
Sky News he points to Australia's
outstanding record of creating 2.7
million jobs in the past 10 years and
says it seems there's a secret Source
here that's worth preserving I'll tell
you something actually about commentary
on fiscal policy I was brought up in a
in a culture where it really wasn't for
central banks to provide a running
commentary on the decisions that
democratically elected governments take
those are difficult decisions they're
ones that they're accountable to their
electorate for uh and you know outside
of a financial crisis and unfortunately
I had to deal with one we had to deal
one with the UK quite recently uh I
think it's for democratically elected
governments to make fiscal decisions and
it's for central banks to do the job
that they were given to do by the public
which is to bring inflation down to the
Target level and to keep it there so you
might have noticed overnight that the
European Central Bank cut interest rates
by a quarter of 1% apparently they did
that's what I heard and I you might have
also heard that the Bank of Canada cut
rates by by a quarter of 1% the previous
night um now given the fact that the
Reserve Bank is not ruling anything in
or out the next rate may move maybe up
or down um is Australia out of sequence
as an economy as its own monetary policy
with other economies around the world I
don't think so I think let's take those
cases in in turn because they're
interesting in Canada the case is
straight fairly straightforward their
interest rates were higher than ours
their inflation rate is lower than ours
and their unemployment rate has picked
up quite a bit more substantially than
ours I think if you took those data out
of Canada and you plugged them into the
Australian context you might well see a
different policy stance so um Canada is
in a different place in terms of the
economic development uh and they made
the decisions that are right for them in
Europe which obviously I've been a bit
closer to in in recent years there has
been a very persistent lack of growth
now you might say Australia has lacked
growth in the most recent period but
actually you compare the aggregate
growth rate in Australia to the
aggregate growth rate in Continental
Europe Australia actually as we've been
hearing this afternoon I guess has had a
pretty positive story to tell relative
uh to Continental Europe you would much
rather I think be uh a a living in
Australia than you would in some parts
of Continental Europe at the moment is
it dangerous for a central Banker to
make predictions about interest rates
and where they'll be in the future
yes is that because community
communication today is expected to be
better by Central Bank Governors and by
their
staff I really do believe and I know
this is a difficult thing to sell that
our the most important communication we
can give to let's be honest the
Australian people who are the people who
we all care about here is that we can
and will get inflation back to a stable
and low level so that and the governor
talked about this I think in her first
PR conference inflation no longer to be
needs to be part of their problem set
there are a lot of challenges in running
a business I was just up in Townsville
in North Queensland Only Yesterday
hearing about some of the challenges up
there and I was in Perth two weeks ago
to try and learn about uh this enormous
and very different economy to the one
I'm used to and you know you need to
recruit people you need to invest you
need to you need to be innovating you
need to be thinking about expansions or
contractions you don't really want to be
worrying about inflation inflation is
the thing that we our job is to off the
table the same is true of your household
you've got lots of challenges in
educating your children bringing your
family out providing for them having
something called inflation that you
can't control and gets into every
decision is incredibly toxic I think
think central banks when inflation
picked up a couple of years ago forgot
this for a little period of time they
forgot just how crucial inflation has
played as a role in long history I mean
without wishing to be hyperbolic it's
caused Wars it's caused genuine
breakdown in society because it is the
most unfair form of economic development
that I think you can really think of as
developing if you're on low incomes if
you're on fixed incomes if you're
struggling to make ends meat inflation
is a toxic thing you can't do anything
about so it's that that I think we need
to give people reassurance about not
that their interest rate will be at X Y
or Z okay so bring it back to Australia
and here the monetary policy the
interest rate in incases were not as
aggressive as other parts of the world
as you've already observed and now we've
had the message that Australia will bear
a higher rate of inflation over a longer
period in order to try and maintain
employment because of the Dual mandate
now of The Reserve Bank to look after
inflation and jobs now those two things
can run contrary to each other from time
to time and maybe are now so the
question is the Glide path down for
inflation is that something that's
really been tried by many central banks
before um well it's interesting because
uh when you think about where for
example the bank of England which I know
more about thought inflation would get
to when inflation first picked up of
course they thought it would rise very
sharply and then fall very sharply so
exanti as it were ahead of time the
central bank was pretty clear that that
would be a blip I think it was called
Transit Tree Project Transit it was
similar messages here as well online
called about that clearly that proved to
be wrong and not just in the UK but as
you say here and elsewhere and we've all
had to live with the fact that inflation
has been much stickier not just in the
last few months but in the last few
years as your colleague said at the
beginning we are living with inflation
above Target for years not for months
and the thing that central banks and all
of us have to be particularly worried
about in that context is clearly that
people start to think well hang on maybe
these guys don't mean it when they say
they're going to Target two three two
and a half% in our case inflation maybe
they're secretly targeting three or four
or five or they're not very competent
and they're not going to do it and at
that point when expectations start to
rise if they do long term they get built
into wages they get built into prices
well a part of the new mandate for The
Reserve Bank is it to communicate better
with the public and with business and in
Andrew Hower I think you've just
experienced that new era of
communication at our Central Bank Andrew
Hower many thanks for your time thank
you