Preliminary Pages
Chair’s foreword
On
2 September 2008 the Reserve Bank of Australia (RBA) announced a 25 basis
point reduction in the official cash rate. The first rate cut since December
2001. Since the start of the US sub-prime mortgage crisis there has been severe
instability in global financial markets. The level of uncertainty and fluidity
in international financial markets has provided a challenge for financial
regulators around the world.
In
April 2008 when the RBA previously appeared before the committee the focus was
on the underlying rate of inflation and the need to bring this under control
with a restrictive monetary policy setting.
The
change in economic conditions between April and September provided the RBA with the evidence to cut rates. The Governor of the RBA in his statement announcing the 2
September rate cut noted the tighter financial conditions but also Australia’s terms of trade which were working in the opposite direction.
A
measure of the volatility in global financial markets is the significant
downturn in conditions that occurred between the 2 September and the
7 October meetings of the RBA Board. The series of events that occurred
during this period led the RBA Board to cut the official cash rate by 100 basis
points, the largest single reduction since 1992. It was evident that there was
a shift in emphasis from inflation to growth.
One
of the key functions of the committee in scrutinising the RBA is to hold it to account for its conduct of monetary policy and, in particular, that its
decisions are in the best interest of the economy. In line with this objective,
the committee was intent on examining the need for the official rate increases of 25 basis points each that occurred in February and March 2008. There was
concern that these rate rises may have been too much for the economy to
tolerate. The RBA defended its decision to raise rates on both these occasions
based on the information that was available.
The
conduct of monetary policy during the previous 12 months demonstrates the
uncertainty that the Reserve Bank can be subject to as a result of volatility
in financial markets. More than ever, this underpins the need for robust and
effective scrutiny of the RBA. The next hearing with the RBA will provide further opportunity for the RBA to account for its conduct of monetary policy
and its forecasts for growth, inflation and employment.
On
behalf of the committee, I would like to thank the Governor of the Reserve
Bank, Mr Glenn Stevens and other representatives of the RBA for appearing at
the hearing on 8 September. The next hearing will be held on 20 February 2009 in Canberra.
Craig Thomson
MP
Chair
Membership of the Committee
Chair
|
Mr Craig Thomson MP
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Deputy
Chair
|
Hon Chris Pearce MP
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Members
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Hon Julie Bishop MP (from 25/9/08)
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Mr Richard Marles MP
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Mr David Bradbury MP
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Ms Julie Owens MP
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Mr Steve Ciobo MP (from 28/8/08)
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Hon Tony Smith MP (from 25/9/08)
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Hon Peter Dutton MP (to 25/9/08)
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Hon Malcolm Turnbull MP (to
28/8/08)
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Ms Sharryn Jackson MP
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Mr Jim Turnour MP
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Mr Michael Keenan MP (to 25/9/08)
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Committee Secretariat
Secretary
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Mr Stephen Boyd
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Research
staff
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Mr Paul Zinkel
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Administrative
Officer
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Ms Natasha Petrovic
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Terms of reference
The House of Representatives
Standing Committee on Economics is empowered to inquire into, and report on the
annual reports of government departments and authorities tabled in the House
that stand referred to the Committee for any inquiry the Committee may wish to
make. The reports stand referred in accordance with the schedule tabled by the
Speaker to record the areas of responsibility of the Committee.
List of abbreviations
CAD
|
Current Account Deficit
|
CBA
|
Commonwealth Bank of Australia
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CPI
|
Consumer Price Index
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CPRS
|
Carbon Pollution Reduction Scheme
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GDP
|
Gross Domestic Product
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GST
|
Goods and Services Tax
|
IMF
|
International Monetary Fund
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RBA
|
Reserve Bank of Australia
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US
|
United States of America
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