At the end of 2014, when the then governor of the Reserve Bank, Glenn Stevens, declared his easing cycle at an end I wrote the following:
Sure, that may be what he’d like. But that is not what he’s got. Stevens’ has an economy of two halves that runs on mining income leveraged up into housing debt. The first one is dying, the second is debt-saturated. So long as he stays in this paradigm, the economy won’t grow and he will have no choice but to cut rates further even though he knows the dangers of doing so. That is why macroprudential is so important.
That’s the real issue. Stevens talked constantly about repairing “confidence” (cyclical) when what he should be talking about is repairing “competitiveness” (structural). To repair that we will need to increase productivity via tax reform, quality infrastructure investment, IR reform, Federation reform, so on and so forth. And install policies to lower the dollar below 60 cents. Stevens’s bureaucratic waffling around the fiscal agenda is self-defeating for the RBA because it traps it as the only lever to pull.
