Cen­tral banks can’t just dial up growth: RBA gov­er­nor

The Myanmar Times - - International | Business -

CEN­TRAL bankers can’t just “dial up growth” to stim­u­late economies, out­go­ing Re­serve Bank of Aus­tralia gov­er­nor Glenn Stevens said yes­ter­day, ex­press­ing se­ri­ous reser­va­tions about the world’s re­liance on mone­tary pol­icy.

Cen­tral banks, par­tic­u­larly in de­vel­oped na­tions, en­acted un­prece­dented mone­tary eas­ing poli­cies af­ter the global eco­nomic cri­sis to kick­start growth – in­clud­ing pump­ing huge amounts of liq­uid­ity into mar­kets, cut­ting in­ter­est rates to ul­tra-low lev­els and buy­ing up as­sets.

But the path to­ward re­cov­ery has been un­even. Amid fears that zero or neg­a­tive in­ter­est rates and quan­ti­ta­tive eas­ing are be­com­ing in­ef­fec­tive, cen­tral banks have started to con­sider other mea­sures such as so-called “he­li­copter money” where they fun­nel cash di­rectly into economies.

“We can’t just as­sume that mone­tary pol­icy can sim­ply dial up the growth we need. We need some re­al­ism here,” Mr Stevens said in his last speech be­fore he steps down as Re­serve Bank of Aus­tralia (RBA) gov­er­nor next month.

“I have se­ri­ous reser­va­tions about the ex­tent of re­liance on mone­tary pol­icy around the world.”

Mr Stevens said al­though low in­ter­est rates were meant to en­cour­age house­holds and other pri­vate en­ti­ties to take on more debt and spend more, some were al­ready strug­gling with in­debt­ed­ness.

In­stead, governments should in­crease their bor­row­ing and in­vest in “long-lived as­sets that yield an eco­nomic re­turn” to gen­er­ate de­mand.

“It isn’t that the cen­tral banks were wrong to do what they could, it is that what they could do was not enough, and never could be enough, fully to re­store de­mand af­ter a pe­riod of re­ces­sion as­so­ci­ated with a very sub­stan­tial debt build-up,” Mr Stevens added.

The Or­gan­i­sa­tion for Eco­nomic Co­op­er­a­tion and De­vel­op­ment in June cut its fore­cast for global growth to 3 per­cent from the pre­vi­ous 3.6pc, and called on governments to boost spend­ing or risk be­ing caught in a low-growth trap.

Mr Stevens said a re­turn to pre­vi­ous in­ter­est rate lev­els around the world was likely to take some time.

“Through a com­bi­na­tion of ex­tra­or­di­nary cir­cum­stances, the cen­tral bank­ing com­mu­nity glob­ally has found it­self do­ing un­prece­dented things,” the 58-year-old said.

Mr Stevens, who hands over to deputy gov­er­nor Philip Lowe af­ter a decade in charge, has been praised for his steady hand as he guided the coun­try through an un­prece­dented min­ing in­vest­ment boom as well as the global fi­nan­cial cri­sis.

Aus­tralia for a quar­ter of a cen­tury has avoided fall­ing into re­ces­sion. But as the econ­omy tran­si­tions from de­pen­dence on min­ing-driven growth, the RBA has had to cut in­ter­est rates to record lows to drive growth in non-re­sources in­dus­tries.

The most re­cent eas­ing to 1.5pc was in early Au­gust –

Photo: AFP

Aus­tralia’s Re­serve Bank gov­er­nor Glenn Stevens has se­ri­ous reser­va­tions about the world’s re­liance on mone­tary pol­icy.

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