Transcript of Question & Answer Session Remarks at the Walkley Business Journalism Award

I'll start by picking you up out of those introductory words and ask the question about the role of the Reserve Bank when it comes to information, because the information put out by the Reserve Bank now would certainly, almost give an indication that it's some form of, if not publisher, then certainly giving ongoing commentary from the speeches, from the bulletins, from all of that type of thing. So is the role of the Reserve Bank in that, to give guidance just to simply give its interpretation or to really give that definitive view of where markets and/or the economy is heading into the future?

I mean, we use our communication to give, inform people how we see things, but we're by no means the oracle of all truth. But it's important I think, to get our views out there and communicate them. And I think it's also important to get them out there in a way that we would like to present them. How you choose to report them is entirely up to you, of course, but it's actually useful to try and get them out there. Now the interesting question for us is, we've got just as you do, multiple audiences and the question is how do you pitch the message to be received by people with different levels of understanding?

And that's always a challenge that we face, are we communicating to financial markets, to the general public, to the readers or listeners or viewers of your audiences? And so that's always a challenge, and we've, I suppose, evolved on that over the years. We've tried to find different ways, we're trying to make some of this stuff a little more accessible and readable than it has been historically, although there's probably still more room to be done there.

But is it the role of the Reserve Bank also to try and change behaviour in the community? If you see excesses coming, and the property market would be one classic example or where say for example, an encouragement by the former Reserve Bank Governor calling for the animal spirits of business to actually pick themselves up. I mean, is this trying to prod the economy in certain ways according to the views you might have about the way in which it is performing now?

I mean on the former, we can certainly, we can identify risks as we perceive them and it's still in the end up to the people as how they want to take that information. Also in the end, we've only got so many levers at our disposal, mostly just one, most of the time which has influence on any number of things. So I suppose it's trying to at least to provide some framework for them to think about what we're doing, understand what we're doing. In the end, it's ultimately up to them, be they households, or businesses, or whatever, as to how they want to take that information. But I think one of our roles is to put out the information, to give at least people some understanding as to how we see things, because how we react to how we see things is clearly going to affect them. It's useful then to have some understanding as to what we're actually on about.

Because your charter says that you are sort of there to try and create stability in the economy. So surely in order to create stability, the words that you put out there, because the words are important here, to make certain that there is that level of stability, that excess or indeed even under performance in the economy is basically noted and perhaps responded to by the parts of the economy that might be susceptible to them.

Yeah absolutely. I mean we're trying to … So we're trying to put out, at least provide an informed assessment as you said we're trying to achieve that level of stability in the economy across … I mean trying to achieve full employment as well as stability. But we're trying to achieve that stability to help people make those decisions, which might help engender that stability. But the other point which is coming to what I was saying in my remarks earlier is, also point out to people that there are uncertainties out there, which as I said, are unavoidable and that they should be aware of them in their decision making, be they a household or a business.

Okay. You mentioned the lever that you have, the one lever you have and the reason why I'm sort of interested in the words and the interpretation of the words is because you clearly haven't pushed or pulled that lever for a record period of time. So there's a second question about this. Given you have a lever that you, right now are for whatever reason, not using, and at the same time you've got commercial banks moving interest rates. Does it mean the Reserve Bank has lost control of monetary policy in this country?

No. It's a very short answer to that question. So we take all of that information into account. I mean, a couple of points of perspective. So the recent rises by some of, not all of the commercial banks was of the order of 10 or 12 basis points. So we tend to move our policy rate by 25, its a bit larger. If you go back over the last 10 years, let alone a longer period of time, the main thing which has caused borrowing rates, or deposit rates for that matter, in this country to go up and down, is what we do with the cash rate. It's not the only thing. And so we take that into account as that part of the transmission mechanism changes, just as we take into account any other change in the transmission mechanism. So the effect of the exchange rate on the economy has changed through time. We have to take that into account.

The movement between our policy rate and lending rates is a little more obvious to people, and so you can see that change. But as we said on any number of times over the past 10 years, one of the reasons why the cash rate is where it is today, quite low, is we're cognisant of the fact that the gap between the cash rate and lending rates is wider than it was 10, 15 years ago. So that's just one of the moving parts that we always have to take into account. But if and when we do move the cash rate, I still remain pretty confident that we'll still have that sort of effect on lending rates that we've had historically.

And given the fact that the cash rate has been, what was described at one period of time, I don't think it's described that at that point now as emergency low rates of interest here in Australia. A lot of people would wonder whether by not raising interest rates you are not building some insurance. If say for example, there is a black swan experience or a global economic down turn down the track that really ultimately you don't have interest rates at the levels of the United States, notwithstanding strong economic growth in Australia, and that maybe you don't have the ability to respond in an aggressive way to help the Australian economy in the event of a downturn.

I mean, just go back to something you said earlier. I mean, every month we think about whether the setting of monetary policy is appropriate. The fact that we haven't changed it for the last couple of years is because we actually think it is appropriate. And as evidenced by the fact that we've got closer, we've moved towards achieving the objectives we're supposed to be achieving, which is somewhere around full employment, the unemployment rate came down to 5 last week. Inflation's a bit above 2, which is pretty consistent with the inflation target of between 2 and 3%. So one of the reasons why we haven't moved it is, we've been moving the objectives that we're supposed to be trying to achieve with the economy has been moving towards them. I suppose the other point is, as we've noted on a number of times, there is some value in being a source of stability in the economy and predictability, but if the circumstances warrant, then we would certainly adjust as necessary.

But then it's not about keeping something in the back pocket or something for some future event, we do what's … The best way to handle something bad which comes along in the future, is to be as strong as you are now. And so we're trying to make sure that the economy is in as good a shape as it can be. That's what we try and do all the time. We don't hold back or pre-empt stuff just to keep some stuff, some fire powder, gunpowder in the locker, sorry. And so the best way to approach anything which might come down the track, is to be in as strong a position as you possibly can be today, which is again, consistent with trying to achieve the objectives we've been given.

Okay. Just one thing you mentioned earlier on, is about full employment in Australia. The unemployment rate last week came down to 5%. Yet there's a school of thought in Australia, and I think it's probably a reasonable school of thought, that there is an excess of supply of labour still coming into the marketplace. Older Australians, families struggling with mortgages and so often there can be women working more hours if they can find the hours or men for that matter as well. But increasingly in some families it is women going back into the workforce that might have otherwise not been there. But just what I'm wondering is, whether you believe that Australia right now with 5% employment, is even close to full employment.

So I gave a speech on this last week, which actually, you're talking about the opportunity for people to ask questions. There was … I don't know if there were any journalists in the room then, but if there were no one actually asked me a question and there was opportunity for that at the end. But I did actually talk about the state of the labour market, that was the title of the talk. So we have an open mind on the question of what actually constitutes full employment, because it's one of those concepts around which there is a bit of uncertainty, if you go back to what I was saying earlier. And it's a question as to how we see things, how wages evolve over the period ahead, how prices evolve.

But I talked a bit about underemployment, which picks up on some of the stuff you were talking about and it's come down with the unemployment rate, but it's still up there a bit. So yeah, we certainly have an open mind about how - about what exactly constitutes full employment. And one of the things I said last week, is that if you look at the experience of other countries, admittedly different to ours, over the last few years or so, as they've got close to what they had previously thought was full employment, these sort of wage and price pressures haven't really started to emerge, have ended up with, able to achieve unemployment rates much lower than they thought they would have been able to historically, and the US is a particularly good example of that at the moment.

So we approach this with an open mind, not with a sort of dogmatic mind, and bring any number of pieces, what I was talking about earlier as well, we have to just look at it, cut this any number of ways to see whether everything is telling a consistent story, rather than come to a definitive conclusion about just one piece of data.

But while you are not coming to that definitive conclusion, if something adverse does occur, a shock to the markets, whatever it might be, a shock to the economy, is one of the criticisms potentially of the Reserve Bank that it has not anticipated these types of events in advance? That they haven't moved settings in advance to try and create the insurance policy that should perhaps be there in some of these people's mind. I know that you're dealing with what's in front of you, but the question is, is it always a risk averse strategy or setting that the Reserve Bank takes?

No, I don't think so. And I said, our main goal is to make the economy as strong as it can possibly be for whatever is coming down the pipe. But also to your point, so there are any number of things, which could go wrong or right, for that matter, in the economy and to some extent, without getting the … We have to set policy for the most likely outcome, not the average of all possible outcomes. I mean, there are any number of things, which could come down the pipe. We have to make some assessment as to whether they're likely, how likely they are and what the impact would be. But I can think of any number of bad events which have a particularly catastrophic outcome. As I said, it's always often easier to think about the bad things and then everything just turns out to be a bit better than you thought.

But instead we've got a … So we can't make policy settings on the basis of a whole bunch of low probability, high impact events. We've got to actually make an assessment on what we think is the most likely course of the economy, and if it turns out that one of those events does actually materialise, be prepared to move quickly in response to that. So you need to be open minded in making that change in assessment quickly, but also at the same time, don't jump at shadows. So it's really making an assessment based, as I said, on the most likely outcome, or the modal outcome, to use a statistical term, rather than necessarily average of any number of low probability high impact events.

Okay. Now before I just take some of your questions out there, and I will do this very shortly, one thing I'd … Just explain this to people. How does a Carlton supporter end up as a Deputy Governor of the Reserve Bank? I normally thought they were kind of a Sharks fans, mainly that they hire them from. But explain the progress through from university and through into the position you're in now.

I'm from Adelaide originally. So that's a …

That doesn't explain Carlton at all.

No, no, it does actually. So if you knew your AFL history, or actually to be more precise VFL history or the SANFL history, I'd like to …

Stephen Kernahan …

But I'd like to point out that this year I've managed to … One of my teams has won the wooden spoon, but my other team, which would be North Adelaide, won the premiership. Admittedly in … somewhat interesting circumstances as to how they got there. But nevertheless, a premiership cup sits at Prospect Oval. But anyway, back in the day, before there was this national competition thing, everyone in Adelaide and Perth, generally had a VFL team they supported, and I supported Carlton for reasons, which I can't remember from before my memory began. And then the other thing, which you should know is that once you support a team, you can never change.

And so I left town, everyone left town, everyone left Adelaide, some people went back because a lot of my siblings went back, but I left and am still here. So what I was going to say is, I left town before the Crows started, and also my family grew up supporting Port. So my dad and my uncle, was in it. So if I'd given a choice, I would have probably been forced to support Port rather than the Crows, so …

And which university were you?

In Adelaide.

In Adelaide?

Yeah. Went there and did my undergraduate degree in Adelaide and then moved to Canberra. As I said this is at that stage, pretty much everyone left Adelaide, you can see the effects of that still today, went to work in Canberra for a few years in the Treasury, and then went from there to the States, did a PhD in Boston, and then worked at the IMF for a couple of years, and then I made my way eventually back to Sydney, to work at the Reserve Bank.

That's a story, no doubt. A final one before we do get to your questions, which is coming up right now. You're here amongst a room of journalists, look at how friendly they are? Look they are even well dressed today, very well dressed. You don't seem to trust them very much.

Why do you say that?

Well, the reason I say that is because I do note that the Federal Reserve and also the Bank of England, after they make an interest rate decision, a monetary policy decision each month, they hold a press conference. The Reserve Bank has always vigorously fought against holding a press conference. Why has the Reserve Bank vigorously fought against holding a press conference after its monetary policy settings each month?

I mean, I suppose … I would say we give opportunities for the media to ask questions as much as any others, possibly more than any other central bank does, in that we get out and give any number of speeches throughout the course of the month, there's a question and answer session at the end, media are perfectly welcome to ask questions.

The journalists generally are discouraged, as you know, from asking questions though.

Not by me, or not by us, but even as I said at the event last week, I was scrambling for questions, and there was plenty of opportunity to ask if any of you had been in the audience. So it's a question of, I feel we provide that opportunity, we put plenty of communication out there, and it's a question of, are we getting our message through appropriately? The media is a very important channel of transmission of that message for sure. But we do, I suppose, provide that opportunity for people to ask questions. Some of you have taken that opportunity, in the past. Also, we can chat to people …

Well, on behalf of my colleagues here, I'd really encourage the Reserve Bank to consider, a monthly media conference after the monetary policy settings, once a month. I think it wouldn't be an unreasonable thing to do. It would bring the Reserve Bank of Australia into step with both the Federal Reserve and also the Bank of England. And of course, benchmarking yourself against your international peers is always an important thing.

Indeed.

We'll take questions now. Who is first? Peter Ryan, thank you very much.

Okay. Thanks Guy. Look how Ross just stole my question. I was going to ask you about the press conference, but I think that, that indeed answered it all. I was going to ask you about social media, these days in journalism we're all under pressure to get that data out as soon as possible. Last Thursday with the jobs was pretty typical, and there's pressure on people to get that message out, and those results out quickly. Do you have any concerns about the changing landscape of journalism, where there is a rush to be first rather than taking that more considered approach to getting, filling in the details?

Well, I'm just going to say, that's to some extent what these awards are about, right? Is actually rewarding people who take the time to … Don't rush out the first story, but take the time to write a considered piece and fill in those details. I'm not sure exactly the criteria for the Walkley awards, but it's got to probably be there somewhere, that would at least be one of them. So it seems to me there's still very much a demand, although you would all know this better I suppose, but there seems to be a demand for considered, well thought pieces rather than reactive. And partly coming to what I said earlier, it's not entirely clear that you're giving people what they want, sorry, with the reactive stuff rather than, there is some demand for that, but there's also time for something, which is a little more well thought out.

And I would hope, in the media, just as in other professions, that the cream of the people who do that still rise to the top, and it's just not completely rewarded with click bait. I realise it's a challenging environment, that all the media companies today in particular are operating in, but, I still think there is very much a demand for that there. I think the issue at the moment is how to monetise that, which unfortunately is always going to be a primary consideration.

And next, Emma could you identify yourself please?

Guy, there's a lot of catastrophising around the level of household debt in Australia, given it's, I think on last measure, the second highest to Switzerland, and there seems to be a real polarisation between those who were writing that it is the single most difficult, kind of intractable problem in the economy in terms of your deliberations, and those who are perhaps having a different reading of what you all are saying in terms of your level of comfort. Can you give us some clarification around where the Reserve Bank is thinking about the level of household debt, and what sort of risk it poses to the broader economy?

Yeah, thanks. So we put out our Financial Stability Review a couple of weeks ago and it's had a fair amount of focus on that particular issue. But to your question, so it creates a vulnerability for the economy. How much of a … The assessment we came to, I think a quick way of summarising what was in the Financial Stability Review a couple of weeks back is, it's not so much a vulnerability to the financial system in that sense, but more of vulnerability to the macro economy. Households pull their heads in because of their high debt levels, that has a negative feedback on the economy as a whole, rather than a whole bunch of households are going to default on their mortgages all at once, say. So the level's high, household balance sheets are adjusting to that, and that's been going on now for quite some time.

So it's more about the … I would say the quality of the lending as much as the quantity. No one really has a good handle as to how much is too much, so you can make comparisons to other countries, that's benchmarking, as Ross was talking about earlier, but even then that's hard to come up with anything definitive. So it's as much looking at it as to how much of a risk this poses, and it's really much about the risk, not that there's some level which is just absolutely too high. So, what impact is that going to have on households in particular, on their behaviour? Did they make appropriate borrowing decisions or not? Did the banks, which were lending to them make appropriate lending decisions or not? So it's very much around that.

So to sum it up, I suppose it's mostly about the resiliency of the household balance sheet and that's what we spent a fair bit of time talking about a couple of weeks ago, and I think we're a little more, we have some degree of comfort that balance sheets are probably more resilient than they were a couple of years back, as lending standards have tightened up or improved, and that households are in a position where they're able to handle what they've got, but it's still a risk factor which we talk about constantly out there, but much mostly through the macroeconomic lens.

Guy, acknowledging that the Reserve Bank's remit is for inflation, the containment of inflation and full employment, and the overall wellbeing of the Australian economy. Do you do any, what you called your modal outcome work on population growth and climate change, and particularly climate change as a risk to the agricultural industries of Australia? Population growth as a lever of economic growth, but with the collateral damage of infrastructure backlog and unliveable, more unliveable, congested cities?

I suppose we certainly look at population growth because it has a clear macroeconomic impact, I don't think we'd necessarily look at it quite through that last lens, so sort of impact on sort of liveability. But do we have a look at it? One of the reasons why we've got all this infrastructure going on in here and in Melbourne, and in fact, in a lot of cities in Australia, including even in Adelaide. I was back there last weekend and there's some infrastructure investment going on there too, is very much a function of the population growth. So that has a clear flow through to the macroeconomy. So yeah, we have to look at that question. I mean, we just say, this is what population growth is, these are the sort of macroeconomic consequences of it.

On climate change, interestingly, just joined a group of central banks looking at climate change issues, much more through, our lens there, so we look at it through the macroeconomic lens and the effect of the drought on the economy is something we do today, just as we've done for a long time. And we look at the effect that climate change is having on, say renewables energy at the moment, which you can actually see in the macroeconomic data. So we look at it again and through that lens of it's sort of direct impact of people's decisions in responding to it, to the economy. But we also look at it through, I suppose, for want of a better term, almost a financial stability lens in terms of what impact this might have in terms of things like stranded assets and that sort of thing.

So it is something we've just started to move to looking at, talking to some of our peers around the world who are probably a little more advanced in this than we've been, and just to try get an understanding of this sort of interaction that climate change may be having on the economy, but also on the financial system.

Tom?

Uncertainty, has four syllables, crisis makes a better headline. To what extent in your reflections on the media, that you made earlier on in your address, did you think about the role of the marketing space in news organisations as opposed to what we're seeing assembled here at the lunch, which is solely individuals that are responsible largely for the narrative.

I'm not sure I completely get where you're coming with the question. I mean, I suppose we do think about the medium. I got Judy Hitchen here, who's our Head of Communications. One of Judy's main roles is to think about how we get the message that we're putting together, how we get that out there. You mentioned social media earlier, I mean we have … I know we clearly reached peak Facebook, because Reserve Bank's got a Facebook page now, so that very much means we're at peak Facebook, so we're right at the cutting edge of that technology. But it's interesting to think about … You know, you also mentioned about … So we have a Twitter account for content distribution, but not for communication. In part, I think because we do want to be careful in thinking about how we convey our message and that so we're not just reactive to every thing that comes out there. We try and present a little … Try and present a considered view, fairly consistent view, which is not jumping around too much.

We have to be careful of avoiding what Ross was talking about earlier, is that we get, we're too resistant to change at the same time. So you've got those competing tensions absolutely. But I suppose it has been a challenge, if I think back, started at the Reserve Bank 20 years ago, back then the medium of communication for our message was pretty much entirely through the print media, that was, I would say pretty much the full extent of our communication with the media was with the print media and that just clearly isn't going to work these days in terms of a vehicle for trying to convey the message out there. So we've got to be cognisant of the fact that the media landscape is changing.

But I still think by and large, the way I would put it, is that we work on a sort of medium to low frequency in terms of messaging. Whereas, I know that some of you have got to be much more on a high frequency. I'm not sure that we necessarily have to engage at the high frequency level, but certainly as the message, as I said, we're trying to present this sort of, I'd say slightly more medium frequency message. We have to think about what are the best ways in trying to ensure that that message gets out there and not just gets out there, but at least as importantly gets understood. And there's no point in us just bombarding the world with all these messages which are just completely lost. We have to make sure that they're actually getting understood.

Just a quick question, just to follow up to when you were saying that what constitutes full employment, you're open minded to and also a follow-up to your speech from last week. Just wondering whether the RBA is looking at revising their NAIRU target, whether you see that unemployment rate, the jobless rate has further to fall and whether 4.5% would be a more, a more accurate target for you.

I said we're open minded with it. That's why we always, that along with any number of other things are one of the things we're always continually looking at, examining and testing, but I'm not going to pre-empt where we get to on that. Again, we have to operate on a slightly more, coming back to I said just a second ago, on a slightly more medium-term frequency and not completely react to the most recent piece of news we get.

Okay. Two the last questions, two very quick questions. I've got them both here in front of me at the moment. Do you have the microphone? Yeah.

It looks likely we're going to have a federal election sooner rather than later. What impact would the Labor Party's plans, changes to negative gearing and capital gains tax have on the housing market, do you estimate at this point?

So I'm probably not really going to go there. So this will be, you asked about press conferences as well. When we see stuff, policy changes and the like happen, then we obviously have to take account of them rather than try and pre-empt them. So as I said, we mostly have to deal with what's in front of us at the time. We can think about particular scenarios, that's obviously always useful to do, but in terms of responding and whatever, we have to sort of deal with what's in front of us.

That's your response to the media conference. See that's what we get all the time. Last question.

Going off Quentin's question on population, there's no doubt that the economy has benefited from the high rate of immigration that we've had over the past couple of years. There is an election coming, immigration is likely to be an issue in that election. Would it be of benefit or not to reign back the rate of immigration that we've got?

So again, partly a similar answer to the previous question is, I mean one of the things we've always got to be mindful of including in our communication is, we try and maintain our independence and be at somewhat, you know, well, not somewhat, be an apolitical institution. I think actually, the people of Australia expect that of us. And so I suppose we've got to be careful about what we do and don't comment on for exactly that reason, in that we don't want to get pulled into a political process in a way which is going to be detrimental to our both standing in the community and also our future operations.

So, I mean Phil gave a talk a couple months back now I think, which he talked about some of the consequences of immigration, so we can talk about that and at least try and provide a view, not necessarily … a perspective on some of the consequences of that which maybe, which people can then use to form their own opinions without … As I said, I think in terms of things we want to have definite opinions on, they've got to be stuff which is very much within a somewhat narrowly defined bailiwick.

And the more we stray off that territory, I think it runs the risk of undermining, the sort of main reason why the institution's here. And I suppose that's the other point is we got to bear in mind is, it's an institution which we've got to preserve, adds benefit from just being the institution that it is and we just got to be careful in how … IT only has a finite degree of capital I suppose, so we got to be very careful where we expend that capital. So we do try and provide perspectives on some issues including that one or provide some analysis around it, sorry. And I think we have a role to do that without necessarily drawing conclusions from that and leave that for others to do.

So you got through that pretty easily I thought. Yeah, that's like a media conference. Would've been shorter if you've been talking just interest rates. Anyway, it was good. I did like the fact that the ABC was over represented, so thank you very much for that as well. That was a fabulous thing.

You had a fair go!

I had a fair go at the start, that's all right. There's just one of me, that was about eight of you in the room, that's the way it goes. Anyway, so Guy, can I just say thank you very much. It's one of those things that I think in media that, it always comes down to respect and to a certain extent honesty, the relationships that do work between organisations and individuals, to have the ability in this environment to have Guy Debelle here close up as it were, is really a sign of his trust and respect in the group who's in the room, and I kind of guess our trust and respect in him, in the way in which we've dealt with him as well.

So it is important that the Reserve Bank is really that vehicle that goes beyond government, goes through government. That it is seen to be independent, that it is seen to be respected, and I think that's one of the absolute keys and hallmarks of the organisation.

A small tip in social media, just a small tip for you as well. I've given you one small tip, I'll give you a second one. The Australian Bureau of Statistics has dramatically improved its output on social media, dramatically improved it. The little ideas and things that they are coming up with, which are related to the current events. I don't know whether any of you notice this, are fantastic right now, little insights into Australia. And as I say, from an organisation that was really bad at this sort of stuff just two years ago, they have done a fabulous job in improving, not only the messaging, but the way in which they interpret the messaging as well. And so as I say, I think that might be just a second small tip for you today. Guy Debelle, I appreciate your time here today, as we all do, and can you please, well, acclaim in the way in which you should be. Many thanks.

Thanks Ross.