Review of the Reserve Bank of Australia annual report 1996-97

Media release, 22 June 1998

RESERVE BANK'S PERFORMANCE CLOSELY SCRUTINISED AGAIN

'The Reserve Bank's response to the worsening Asian crisis and its impact on the Australian economy was highlighted in a Committee report to Parliament today.'

The Financial Institutions Committee today tabled in Parliament its report on the Reserve Bank's annual report 1996-97 and the Bank's May 1998 semi-annual statement on monetary policy. The Committee's report addresses several significant aspects of the conduct of monetary policy and the performance of the Bank.'

'The report is based on discussions between the Governor of the Reserve Bank and the Committee at a public hearing on 7 May this year.'

David Hawker MP, Chairman of the Committee, said 'In discussions the Bank outlined its views on the causes of the Asian crisis; the fact that the crisis was the first significant identifiable external shock for the Australian economy since OPEC II in 1979; its belief that the major uncertainty is Japan; and details of the IMF support packages and strategies that some Asian economies are using to address the situation.'

'While the Reserve Bank in no way sought to downplay the effects of Asia for the Australian economy, at the time of the hearing it stated that the Australian economy had coped quite well largely because we were in good shape going into the crisis, a factor for which we are most fortunate.'

Mr Hawker said 'Other important matters addressed in the report are:

• a review of the RBA's expectations of the economy and monetary policy for 1997 and the prospects for 1998;

• the Australian Government's encouragement of a more flexible approach to the IMF's stance on the Indonesian support packages;

• the widening current account deficit and the Bank's response to that situation;

• the level of national savings;

• the impact of US monetary policy on Australia;

• significantly improved interest rates for small business;

• the introduction of the real time gross settlement system for large payments between banks which is scheduled to commence today;

• the RBA's views on regional bank branch closures and criticism of the major banks;

• the financial industry's progress in addressing the "Year 2000 problem"; and

• arrangements for the transfer to the new Australian Prudential Regulation Authority.'

'A number of these matters will be monitored by the Committee, and developments and progress discussed with the Reserve Bank when it meets with the Committee again on 5 November 1998 in Canberra' concluded Mr Hawker.

Ends
22 June 1998
Email: EFPA.Reps@aph.gov.au

Further information:
David Hawker, MP (Chairman) Parliament House (02) 6277 4100
Bev Forbes (Inquiry Secretary) (02) 6277 4587

A copy of Mr Hawker's tabling speech follows.

An index to the report and a copy of the report in PDF format are available on this site. The report is also available by contacting the Committee secretariat.

TABLING SPEECH: DAVID HAWKER MP, CHAIRMAN

Mr Speaker this is the third report on the Reserve Bank that the Committee has tabled during this Parliament.

This report addresses significant monetary policy issues and some prudential matters discussed between the Governor of the Reserve Bank of Australia and the Committee at a public hearing held in Melbourne on 7 May this year.

As I said at the time of tabling the Committee's last report on the Reserve Bank, this is one of the most important tasks that the Committee undertakes.

The Reserve Bank's appearance before the Financial Institutions Committee has become a significant avenue of accountability and transparency for the Bank, with increasing public interest in the proceedings.

Obviously the most significant issue discussed at the hearing, and thus in the report, was the worsening Asian crisis and its impact on the Australian economy.

As we are all aware, at the core of this problem are the very rapid adjustments that the countries involved have had to make to their external positions to stop their exchange rates from falling below the extremely low levels they reached in late 1997.

At the time of the hearing the major uncertainty was Japan. As well, recent political and social events in Indonesia have surpassed previous expectations of change.

The Bank in no way sought to downplay the effects of Asia for the Australian economy, noting that it was the first significant identifiable external shock since OPEC II in 1979.

However, at the time of the hearing the Bank believed that the Australian economy had coped quite well largely because we were in good shape as the crisis evolved.

We have strong domestic demand, low inflation, low interest rates, financial markets that have behaved sensibly, and with international investers in the bond market drawing distinctions between Australia and Asia. Our exchange rate has depreciated against the US dollar and other major currencies but this is an understandable market reaction to the deterioration in our international trading position. Unemployment is dipping and dipped below 8% in April.

The current account of the balance of payments is expected to widen, but the Governor said this is not a sign of economic policy failure and trusts the markets will treat it accordingly. The Bank's response to this situation was a source of considerable discussion.

At the hearing the Governor said the Board considered the present setting in monetary policy is the right one. Most members of the Committee agreed.

With the situation in Asia worsening and the second wave of impact for Australia now being felt, the Asian situation will undoubtedly be the focus of our agenda for the November hearing later this year.

Other significant matters addressed by the Committee were: the improved interest rates for small business; the level of national savings; Australia's role in the Indonesian IMF support packages; the impact of US monetary policy on Australia; and prudential matters related to the establishment of the new Australian Prudential Regulatory Authority; and the "Year 2000 problem".

I thank the Reserve Bank, especially the Governor Mr Macfarlane, and secretariat staff for their assistance with the inquiry and all the members of the Committee for their professional approach to the public hearing and for their contributions to this report. Clearly the nature of the questions and responses at the hearing reflected the quality of this very professional team.

I commend the report to the House.

Back to top