Transcript of Question & Answer Session The Role of the RBA's Business Liaison Program

Alex, in the comments you made about the hurdle rates and the fairly rapid turnaround on investment. In the development industry we have very, very long periods before we actually get a return and we have quite a high-risk profile. Did you find this through any of your liaison teams that there was a relationship between the rate of return, the hurdle rate, and how risky or the length of return that was required or is that something, did you want to make any comment in relation to that?

Sure. So when we've spoken to firms about the hurdle rates and the way they make these investment decisions. I think it's pretty clear that in situations where they feel like the risk environment is greater than normal or things are more uncertain than normal, they do tend to respond by either increasing the hurdle rates, putting an extra margin in there. And the other way that seems to be more prevalent is that sometimes they actually shorten the payback period. So they're much more willing to invest in projects with these front loaded returns in an uncertain environment than they might normally be.

You've just given our wording back to the government about the development industry investment. Sorry, I was teasing. Are there any queries, questions from the floor? Yes, we have one down there and I'm sorry I can't see who it is from the lights.

Thank you Alex. Tasio Cokis, Woodsome Management. How do you work out or how do you choose the people who you liaise with in Perth? Thank you.

I probably can't answer that in very great detail. What I do know is that we put a lot of effort into getting broad industry coverage. So we do make sure that we have liaison contacts across a broad range of industries. Obviously, when we come to Perth some of the expertise is with the mining industry, so we have very strong liaison focus on the mining industry, perhaps more so than in other states. Owen Bailey is currently our Senior Representative in Perth so he might have more specific things to say. And I guess, the point about mining goes some way to saying that we tend to adapt the frequency with which we speak to particular industries depending on how important those industries are, or understanding developments in those industries are for the aggregate picture. So, for example, I was speaking to someone before, we've certainly put a bit more effort into understanding some of the supply side constraints in the housing industry of late because it's a particularly important factor for understanding developments at the aggregate level.

Mr Hensley, and the microphone is coming.

Thanks very much, Alex, for your address, Warwick Hensley from QS Patterson. We don't often get somebody as from such a lofty position of the RBA as yourself, and I'm sure many people in the room would like to hear your views about the balancing act that the RBA is going through with the Sydney and Melbourne property markets at such stellar levels, whereas in Perth, as many in the room would know, we've had a very flat market, it's pulling up quite sharply in fact. Prices I think fell 4 per cent in the June quarter alone. And just what are some of the issues around that and, and how is the RBA viewing that? Your current views would be most welcome.

Sure. So I think the answer to the question is we put a lot of effort into understanding the differences across the different property markets. Ultimately, the Reserve Bank is responsible for macroeconomic objectives and we have a monetary policy tool that is relatively blunt. So our ability to customise our monetary policy tool for differences across regions is quite limited. Clearly, the issues in different housing sectors have been noted and the financial stability considerations, is a topic that's being discussed in the Council of Financial Regulators. And I think one of the things that we've, as a regulating community, or official policy making community, have focused on is making sure that the financial stability risks are mitigated as best we can. So that largely falls to APRA. They're responsible for thinking about the quality of the lending standards, banks, capitalisation, things like their risk management practices. So most of the response specifically to the housing market have come in the form of changes in APRA's regulation and the level of scrutiny that they've put into those sorts of considerations.

Are there any last questions otherwise we have to wrap this up? If nobody is burning I really want to thank you Alex, that was absolutely fascinating. Could you please join me in thanking her. Thank you so much.