Working Papers

Glenn Stevens Goes Where Ian Macfarlane Feared to Tread

Former RBA Governor Ian Macfarlane took pride in never having given an on-the-record media interview in his 10 years in office.  Macfarlane’s public appearances were about as common as those for your average thylacine.  Macfarlane only drew attention to the problem by engaging in a post-retirement media blitz that sought to set the record straight on all the issues where he claimed to have been misquoted or misrepresented while Governor. 

Stevens has more than doubled the annual number of public speeches that Macfarlane gave in his last full year as Governor.  If the last two months are anything to go by, Stevens will double his own record this year.  His senior officers have also been considerably more active in terms of public appearances.

In a further break with the RBA’s secretive past, Governor Stevens has even put in an appearance on the Sunrise program.  David Koch is not exactly Kerry O’Brien or Tony Jones, but the program’s reach is much greater.  It sets an important precedent, but could be taken further.  As I have argued previously, the RBA Governor should be made to front a media conference after every Board meeting and CPI release.  A Treasurer with half a brain would insist on it.

The Governor’s comments on house prices during the program were somewhat risky, in that they could easily give the impression that house prices are a target rather than merely one of many indicators for monetary policy.  If the public think Stevens is targeting house prices, then the Bank will end up owning them (figuratively, not literally, as with the US Fed).  A better strategy would be to go on highlighting the supply-side constraints on the housing market.  The public is smart enough to figure out who is to blame for those.

posted on 29 March 2010 by skirchner in Economics, Financial Markets, Monetary Policy

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I don’t think what Stevens said should be construed as suggesting that the RBA targets house prices (although the media could try that on). But he did send mixed messages - on the one hand, people should be wary of speculating in property, presumably because prices might one day fall. On the other hand, long-term affordability is a concern, which suggests that supply-side issues need to tackled if prices are not to *keep on* rising. I think he should have stuck with his original point, which is that borrowers should be prepared for further rate rises, and should have left the investment and policy advice to others.

Posted by .(JavaScript must be enabled to view this email address)  on  03/29  at  04:19 PM

It was perfectly clear what Stevens was saying:

KOCH: When you look at things at the moment, is there anything that we should be thinking about, concerned about?

STEVENS: I think it is a mistake to assume that a, you know, riskless, easy, guaranteed way to prosperity is just to be leveraged up into property. You know, it isn’t going to be that easy. And I think if we think about property prices as parents - you’re a parent, as am I - I’ve got kids that within not too many more years are going to want somewhere of their own to live and you wonder, you know, how is that going to be afforded because the prices are getting quite high.

Shorter version:

KOCH:  What are you targeting?
STEVENS: House prices.

The RBA has to play a delicate balancing game here.  On one hand they don’t want the national pastime to get out of hand, and on the other they can’t allow a significant downturn, because housing in Australia is TBTF.

The RBA may not literally own the mortgages like the Fed, but they already own housing as an issue, and have done for years.  Australia has got itself into a policy straight-jacket over housing because we’re leveraged to the hilt, and cannot be allowed fail.  Policy discussions about negative gearing, CGT concessions, stamp duty, land tax etc are all strictly off the agenda beacause the politicians are terrified it might crack the housing market.

David Llewellyn-Smith summed up the Australian economy beautifully the other week: Resource income, leveraged up and blown on housing.

Posted by .(JavaScript must be enabled to view this email address)  on  03/30  at  10:05 AM

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