Bad Criticism, Without Reserve

Sydney Morning Herald

Wednesday April 9, 2008

GLENN STEVENS, the governor of the Reserve Bank of Australia, must be wondering about his new-found celebrity. Since opening up the central bank's deliberations about interest rate settings, he has suddenly found himself a tabloid villain, callously turning the mortgage repayment screws on hapless families in the western suburbs. The Leader of the Opposition, Brendan Nelson, and some retailers have joined the hue and cry.

Yet most Australians will be rather glad the Reserve Bank has been successfully shielded from political pressures from above, and would hope that the attack on its governor does not rattle him or his officials. Under its previous governor, Ian Macfarlane, and so far under Mr Stevens, the bank has steered a moderate course between the rigour of its New Zealand counterpart and the permissiveness of the US Federal Reserve, with the result that ordinary Australians have been spared a lot of financial pain.

Part of this was due to the inflationary target zone of 2 per cent to 3 per cent set for the bank in 1993, which allowed a fair amount of buoyancy in the economy before trimming was required. But the bank's tools were always limited in their application. Fiscal policy - government tax and spending - is part of the equation, and Australia's opening financial system allowed borrowing from overseas markets with lower interest rates. Now a long period of stable consumer prices but rapid growth in asset prices, notably urban housing, has been followed by rising prices for food, fuel and foreign loans and levelling or falling asset prices. It had to come. Mr Stevens and his counterparts elsewhere are only doing their job and stopping many more households falling into this trap.

The squeeze is hitting high and low, but of course it is more directly the suburban battlers who stand to lose their house rather than the owners of share portfolios bought on margin loans. The language of economic management will strike them as heartless. Even so, the central bank governor is not chosen for his ability to emote in public.

Mr Stevens, careful though he is, has been more forthcoming than his predecessors in explaining the Reserve Bank's thinking, and publishing the minutes of its deliberations on interest rates. The transparency is welcome. He has also offered a view on carbon trading: the price of energy will have to rise so people get the message that they should use less. It may be harsh, but it is also the truth. And that, after all, is what he is paid to tell.