Press Conference

SUBJECTS:

Announcement of appointment to Governor of the Reserve Bank

TREASURER:

I have called this news conference today to announce that Glenn Stevens will be the next Governor of the Reserve Bank of Australia and he will take that position from the 18 th of September when the term of the current Governor, Ian Macfarlane, comes to an end. I would like to take this opportunity to record my very deep gratitude for the work that Ian Macfarlane has done. He was appointed first to the Bank by me ten years ago, he served a full seven year term and I offered him a second term of reappointment, he asked that his second term be limited to three years to provide for a successor in the Bank and his second term of three years will be coming to an end on the 18 th of September.

During the period that Ian Macfarlane has been the Governor of the Reserve Bank of Australia, Australia has had an exceptional economic performance. We have averaged annual growth of 3½ per cent, we have averaged annual inflation of 2½ per cent, we have averaged employment growth of 2 per cent and our unemployment rate has been reduced to 4.9 per cent. Ian Macfarlane has been an exceptionally successful Governor of the Reserve Bank and when a history of the last ten years is written will show as one of, if not the greatest periods of economic management in Australian history.

Glenn Stevens comes to this job with a great deal of qualification and experience. Glenn has been the Deputy Governor of the Reserve Bank for five years, he has had a distinguished academic career both here in Australia and overseas and he has worked for a time in the Federal Reserve Bank of San Francisco. I have had the opportunity to observe Glenn over the five years that he has been the Deputy Governor and he has during that period been a Member of the Board.

The appointment of Glenn Stevens as Governor will of course leave a vacancy in the position of Deputy Governor. I will now consider the appointment to that position. We will consider both internal and external candidates for that position as indeed we considered for the position of Governor. We considered both internal and external candidates and my judgement was that Glenn Stevens was the strongest. I wish him well in the discharge of this very important office and I again place on record my thanks, the thanks of the Government and I think the thanks of the nation to Ian Macfarlane for the work that he has done over the last ten years.

JOURNALIST:

Treasurer, will you have a new agreement with Mr Stevens?

TREASURER:

Yes, the way in which we have conducted monetary policy since the appointment of Ian Macfarlane is according to an agreement between the Treasurer and the Governor. Glenn and I will be entering into such an agreement before he commences his term. I can tell you that the agreement will be substantively the same as the current agreement and most importantly will have the same object as the current agreement of keeping consumer price inflation between 2 and 3 per cent on average over the cycle. And what that means is that there will be occasions when the CPI goes above 3 per cent, there will be occasions when the CPI goes below 2 per cent but on average over the cycle it is the objective to ensure that it stays between 2 and 3 per cent.

JOURNALIST:

How might an agreement differ from the one that you had with Ian Macfarlane?

TREASURER:

But it won’t differ in any substantive way, there may be some wording changes.

JOURNALIST:

Treasurer what has given the timing of this announcement?

TREASURER:

Well the Governor’s position is going to end on the 18 th of September, there has been a lot of speculation in the press as to who the replacement would be and I think it is important the markets and everybody else know that we have got in mind the new Governor and that there will be a smooth and easy transition over the next six weeks.

JOURNALIST:

Do you think it’s sensible to make the announcement, was there any reason to make the announcement before tomorrow’s announcement on monetary policy?

TREASURER:

Well the Board is meeting today and so I informed the Board today that Glenn would be the new Governor and having informed the Board I thought it was prudent to inform to public as well.

 JOURNALIST:

One of the features of Mr Macfarlane’s term has been that Australia has had no downturn, no recession. What do you think the prospects are for the new seven year term on Australia’s outlook?

TREASURER:

Look we have lived through the longest period of continuous economic expansion in Australian history. There has been no other period of economic expansion of this duration. Now, whilst we have been going through that nearly every other economy in the world has been through a recession. The United States has, Japan has been through several, Europe has, Hong Kong has, Singapore has. As the world knows, this has been a pretty unique world performance. Now the object is to keep the economy growing. If anybody tells you there is a recession which we have to have, they are wrong, completely wrong. There is no recession that we have to have, the object of economic policy is to avoid recession. Recessions put people out of work. They make businesses fail. And the object is to do what we have done over the last ten years, not what was done beforehand. That was a failure of policy, not a success of policy.

JOURNALIST:

Mr Macfarlane leaves, will be leaving the job with an uptake in inflation to its highest level certainly in this term, are you prepared for the political unpopularity that will come when Mr Stevens has to curb that inflationary uptake?

TREASURER:

Well you know, you always make lots of assumptions in your questions and I am sure that is there just to drag me into your spidery web.

JOURNALIST:

Is it a black mark against Ian Macfarlane that he leaves office with inflation well above the band?

TREASURER:

Well as I said, I don’t think people have properly understood what the objective is. As I said earlier there will be occasions when the CPI is above 3 per cent just as there have been occasions when it has been below 2 per cent. What our objective is, is between 2 and 3 per cent on average over the cycle. So what we are saying to you is if you take an economic cycle and you take an average CPI rate it will be between 2 and 3 per cent. Now, as we all know with CPIs you get one-off factors that can influence the CPI and that is why we have an average over the cycle. We are in the middle of some of those one-off factors now. We had one-off factors when the GST was introduced. When the GST was introduced the CPI went to say 6 I think, 6 or 7, something around there. We wouldn’t have said to ourselves, well that is a failure, let’s try and get it back into 2. We knew we were making tax changes, we knew that that would push through the system. So, it is not just a mechanical thing, you have a look at the CPI on a particular day and take a response, it is a question of looking over the cycle and making sure that over the cycle on average we are between 2 and 3 per cent. As I said in this release we look over the last ten years, 2½ per cent almost right bang in the middle of our target.

JOURNALIST:

What do you think will be the challenges that Mr Stevens will face?

 

TREASURER:

Managing monetary policy. That is the prime focus of the Reserve Bank. Now bear this in mind, when Ian Macfarlane started, the Reserve Bank not only conducted monetary policy, it conducted prudential policy and it was the decision that I made to strip prudential policy out and put it in the prudential regulator which gave the Reserve Bank a single focus, that is a monetary policy focus. I think that was a very successful move actually and it gave them that focus. So, here we have essentially an institution, a very well resourced institution which is dedicated essentially to one task, monetary policy. I mean they have subsidiary parts of it, some of it does note printing, some of it does the payments system, subsidiary boards, but it is a very, very focused board. And it is quite different for most central banks around the world incidentally, most central banks around the world not only do monetary policy, they do prudential policy as well.

JOURNALIST:

Treasurer, you talk about the recession we had to have and that…

TREASURER:

No, I didn’t talk about the recession we had to have, there was somebody else that talked about the recession we had to have, only because he failed.

JOURNALIST:

Yes but if the Reserve Bank says tomorrow that there is an interest rate rise that we have to have will they be wrong too?

TREASURER:

Well the Reserve Bank has been given by me and the Government independence to make these decisions.

JOURNALIST:

But will they be wrong?

TREASURER:

The Reserve Bank has been given the independence to make these decisions and we have deliberately given it the independence so that it can make the decisions which are appropriate in the circumstances.

JOURNALIST:

But having said that do you think personally that they are wrong if they put interest rates up?

TREASURER:

No I am sorry, I don’t give personal views on what the Bank should do tomorrow, one of the reasons I gave it independence is so it could make appropriate decisions.

JOURNALIST:

How many interest rate rises would it take to put you out of a job?

 

TREASURER:

Sorry, what was your question?

JOURNALIST:

Mr Costello is stronger than expected building approval data today a concern and something that will put pressure on rates going forward?

TREASURER:

Look, the building approvals which came out today I think were consistent with what we see in the building market that the building market is certainly softer than it was some years ago that there has been a correction but I think we are now starting to see a bit of a recovery and as long as it is a gradual recovery then I think that is welcome. We wouldn’t like to see the kind of heat come into the building market that we saw in the late 1990s and the early part of 2000. We have had a welcome slowing in the housing market, we can afford a recovery but I wouldn’t want to see it be a heated recovery.

JOURNALIST:

Treasurer are you considering an outsider for the Deputy’s position, how seriously are you considering it and would you look at someone, say from Treasury to perhaps enrich the Reserve Bank?

TREASURER:

Yes we will look at candidates from all fields. Treasury, Bank, private sector and in relation to this appointment I did look at candidates from all fields and came to the conclusion that Glenn, because he had been Deputy, because of his experience, because of the way in which he has conducted the business of the Deputy Governor, was the strongest candidate. There is no automatic selection from inside the Bank and there won’t be in relation to the Deputy Governorship.

JOURNALIST:

Would that be a benefit though, an outside view?

TREASURER:

It is one of the things we take into account. Look, they probably would benefit from an outside view. Yes, they would. But that means that you have got the best candidate from outside. And as I said we will go for the best candidate. We won’t just go for a candidate from outside because we feel we want an outside view.

JOURNALIST:

Does Mr Stevens have a mortgage?

TREASURER:

Yes, I believe he does. But I couldn’t tell you how much it is or where it is. He lives in Sydney, I know that.

 

 

JOURNALIST:

Are you confident that he would understand the concerns in mortgage belt areas about interest rate rises?

TREASURER:

Well, he has got to take into account the overall economy, overall inflation and part of that the interests of home buyers and mortgage holders, yes.

JOURNALIST:

Treasurer, could you clarify the role of the Secretary of the Treasury who does already sit on the Reserve Bank Board? It is a bit of a grey area in my understanding whether or not he actually represents the interests of the Government through his role as head of the Department or he is there as an economist giving his own view?

TREASURER:

Every director of the Bank is there as a director in order to discharge their duties in accordance with the statute which gives them objectives and in accordance with the statement of conduct which is entered into between the Government and the Governor. The Secretary of the Treasury is a very valuable member of the Board because the Secretary of the Treasury would have access to more technical information, a second stream of economic assessment which would only be rivalled by the Bank itself. The external directors tend to bring experience from business. They would bring more anecdotal experience from the various industries that they come from. But only the Secretary of the Treasury would come with the wealth of experience and technical backup which would rival that of the Bank, and that is why the Secretary of the Treasury is a very valuable member because they can actually second guess the Bank’s forecasts and assessments and you are bringing your two dedicated institutions together on the one Board.

JOURNALIST:

Mr Costello, how do you know that Mr Stevens has a mortgage?

TREASURER:

Because I am pretty sure that I have read it in a newspaper. I don’t know if it was yours.

JOURNALIST:

The OECD report last night said that the Reserve Bank of Australia was the least transparent of nine comparable Central Banks. Is this changeover an opportunity for some transparency of minutes perhaps, of perhaps regular statements or other transparency records?

TREASURER:

Look, sometimes banks publish minutes long after the event. But minutes are only as good as the recorder and in my experience when they know the minutes are going to be published the minutes are very, very anodyne. And in fact I have asked the Bank itself whether there were any great secrets in its minutes and I am told they are very anodyne. I don’t think you would find much of any great interest in anodyne minutes weeks or months after the event. I think what we have done to enhance the transparency of the Bank is made it extremely transparent. We have statements when there is a change in the movement of official rates, we have a semi-annual appearance before the House of Representative Committee, we have statements on the conduct of monetary policy which are very, very exhaustive statements and these are the arrangements that I put in place when Ian Macfarlane was first appointed and I think they have stood the test of time.

JOURNALIST:

Mr Costello, are you envious of this smooth transition?

TREASURER:

Well, let’s hope that it all works well and lets hope that Glenn can have as successful a period as Governor as Ian Macfarlane.

JOURNALIST:

Mr Costello can I ask you if you considered outside appointments and also there is another vacancy following the retirement of Rob Gerard?

TREASURER:

Well I considered it very carefully, outside appointments. I considered people from the Treasury and I considered people from the private sector and I obviously considered people from the Bank and after considering candidates from all three fields I concluded that the best appointment would be Glenn.

JOURNALIST:

When did you tell Mr Stevens about his appointment?

TREASURER:

On the weekend.

JOURNALIST:

Mr Costello, can I just clarify that you said that you would be keeping the objective of maintaining inflation at between two and three per cent over the course of the economic cycle, will it still be the CPI will headline the rate of inflation that will need to be maintained or will it be some other measure, perhaps one of the Reserve Bank’s own schedule of underlying measures?

TREASURER:

Well the wording will be the same as we have had in the past. The objective of keeping consumer price inflation between two and three per cent on average over the cycle, quote ‘this formulation allows for the natural short run variation of the cycle while preserving a clearly identifiable bench mark performance over time’.

JOURNALIST:

Who were some of the alternate candidates?

TREASURER:

Oh, I don’t think I should go into that. Okay, thanks very much.