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Relief all round at the RBA

Well that’s a relief – the Reserve Bank of Australia will remain in safe and independent hands when Glenn Stevens hands over the governor title to his current deputy, Philip Lowe, in September.

That succession was in serious doubt under Tony Abbott’s prime ministership. Independence was not seen as a virtue in that PM’s office. For a central banker, Lowe on occasions has been quite bravely public in his independence.

I wrote last June of the risk to the RBA of Stevens and Lowe being prepared to tell it how it is. That was after the pair effectively told the government it’s economic management was failing.

Stevens directly contradicted the Prime Minister and Treasurer on their idea that there was nothing wrong with Sydney house prices continuing to rise. He also suggested it would be a good idea for the government to borrow more to invest in productive infrastructure instead of investing less as it has been.

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Also read: RBA slashes interest rates to record low of 1.75%

That has been economic consensus – but the coalition government still hasn't taken it to heart.

Lowe's speeches and parliamentary testimonies have perhaps been ahead of Stevens in giving full and frank advice about what governments should do and, by implication, what this one hasn't been doing.

The governor and deputy governor are singing from the same RBA hymn sheet on economic principles. 

In August during a House of Representatives economics committee hearing, Stevens introduced Lowe as having “very strong views” on what’s needed to get Australia going.

On a Reserve Bank scale of emotion, it was nearly a cry from the heart. It’s worth considering carefully now as a guide to the next RBA governor – and Canberra’s on-going failings. Said Lowe:

“At the end of the day, monetary policy can’t be the engine of growth in the economy. We can help smooth out the fluctuations, we can’t in the end drive the overall growth in the economy.

“It’s clearly structural issues that do that… Australia is going to be a high wages, high-productivity, high-value added economy – that’s where we want to be, that’s where we could be, that’s where we should be.

"If we’re going to find ourselves in that position and sustain ourselves there, then people need to be able to take risks, they need to be able to be rewarded for risks and we need to innovate to find new ways of doing things better.

“So I think it’s somehow enlivening the entrepreneurial and risk-taking culture, innovation culture, so that we can be the type of country that has high value-added, high wages and high productivity. I think culture’s important.

Also read: RBA cuts cash rate to boost inflation

“In my perspective, I think our society is becoming too risk adverse, the way we think about risk has got distorted and we’re not paying enough attention to returns and we’re paying too much attention to risk.

“I think if we invest more and more effectively in education, in human capital accumulation and infrastructure, so it’s risk taking, education, infrastructure, they’re the things that are going to help us be a high wage, high productivity, high value added economy.

“But the details here aren’t things the central bank are expert in, but they’re the ingredients to be a successful economy in the next 20 years.”

So the RBA under Lowe will continue to be honest about what the nation needs. Our central bank remains in good hands.

There will be time aplenty in September to review Glenn Stevens’ 10 remarkable years at the bank’s helm. He has done extraordinarily well. We’ve been very lucky to have him and our RBA institution.

 

Michael Pascoe is one of Australia's most respected finance and economics commentators with over four decades in newspaper, radio, television and online journalism. He regularly appears on Channel 7's Sunrise and news programs and is a regular conference speaker, MC and facilitator.