Wednesday, April 18, 2012

Industry superannuation chief warns Reserve Bank's inflation focus is damaging economy

By Business editor Peter Ryan

The head of a powerful superannuation body is calling on the Federal Government to rewrite the Reserve Bank's charter, warning that the Bank's primary focus on managing inflation is damaging the economy.

The chairman of the Industry Super Network, Garry Weaven, says that with inflation now under control, the RBA should be using interest rate cuts to boost employment and to drive down the value of the Australian dollar.

Listen to my interview with Garry Weaven broadcast on this morning's edition of AM.

Read the story on ABC News Online.

The former ACTU assistant secretary, who lobbies for superannuation funds including AustralianSuper, Cbus and Hesta, told AM that the inflation targetting mandate imposed when Peter Costello was Treasurer in 1996 is now " totally inappropriate".

"It seems to be still unduly influencing the Reserve in its policies. I know it's very hard to get the balance right, but I think consistently for many years now the Reserve has had far too much focus on inflation only and not enough on full employment and economic prosperity generally, which is their requirement under the Act," Mr Weaven said.

"It's hard to see that the current arrangements are properly co-ordinated. And I think there seems to be little point in having a situation where the Reserve is locked into a sort of single blunt instrument approach and the Government is locked into a political set of parameters."

Mr Weaven said that to the requirement to keep inflation with a two to three percent band over time, the RBA should follow other mandates in the Reserve Bank Act such as ensuring a stable currency, full employment and "the economic prosperity and welfare of the people of Australia."

Mr Weaven suggested monetary policy could be used to trim the high Australian dollar and bolster industry and said the inflation only focus was already hurting the economy.

"I think it clearly does. Notwithstanding the mining boom, we do have signs of real weakness in retail and manufacturing. But more importantly in a way, we have very high interest rates by international standards. And high interest rates push the currency high and that's very, very bad for manufacturers, tourism and some
other industries."

Mr Weaven said the Treasurer Wayne Swan could renegotiate the Reserve Bank's mandate without comprising its independence which he has also questioned.

"It's not much good being independent if all you can do is react through interest rate policy and have no regard for other factors. So at the end of the day no-one is truly independent," Mr Weaven said.

"If the requirements, both for the Government and for the Reserve Bank, is the greatest good of the Australian people and, in particular, the specific requirements in the Reserve Act of full employment, then in the end you must take account of the full picture. And there needs to be dialogue about what you actually do in a policy setting."

Mr Weaven is also the latest to criticise the government's pursuit of a budget surplus, adding to comments by the former Commonwealth Bank chief executive Ralph Norris that it was a "mindless" strategy.

"I think it's very, very difficult. I think it's now almost a political imperative that they deliver that. That's been the result of, you know, 15 years or more of political and economic rhetoric. Given the actual circumstances right today, I think it's hard to argue that a surplus is the main requirement."

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