Review of the Reserve Bank of Australia Annual Report 1998-99: Interim Report, March 2000, Canberra, Canprint Communications Pty Ltd, P 46
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The Parliament of the Commonwealth of Australia 5HYLHZRIWKH5HVHUYH%DQN RI$XVWUDOLDDQQXDOUHSRUW House of Representatives Standing Committee on Economics, Finance and Public Administration June 2000 Canberra © Commonwealth of Australia 2000 ISBN &RQWHQWV Foreword................................................................................................................................................v Membership of the Committee.............................................................................................................vii Terms of reference ...............................................................................................................................ix List of abbreviations..............................................................................................................................xi 1 Introduction...........................................................................................................1 Background................................................................................................................................. 1 Scope and conduct of the review ............................................................................................. 2 2 Conduct of monetary policy ................................................................................5 Review of forecasts presented in November 1999 ................................................................. 5 Prospects for 2000-2001............................................................................................................ 6 Interest rates and inflation ........................................................................................................ 7 Exchange rate........................................................................................................................... 10 Fiscal policy.............................................................................................................................. 13 Economic growth ..................................................................................................................... 13 Relationship between the Australian and US economies.................................................... 15 Effects of the new tax system................................................................................................. 16 Independence of the RBA........................................................................................................ 18 Transparency............................................................................................................................ 20 3 Other matters ......................................................................................................21 Payments system ..................................................................................................................... 21 Bank fees................................................................................................................................... 23 iv Outsourcing .............................................................................................................................. 24 Margin lending.......................................................................................................................... 24 Common currency.................................................................................................................... 25 The Y2K experience ................................................................................................................. 25 Minority Report—Mr Anthony Albanese MP, Ms Anna Burke MP and Mr Mark Latham MP (ALP) .......................................................................................................27 Appendix A - List of Submissions............................................................................31 Appendix B - List of Hearings, Briefings and Witnesses.......................................33 Appendix C - RBA Media Release on Monetary Policy dated 3 November 1999.35 Appendix D - RBA Media Release on Monetary Policy dated 2 February 2000 ...37 Appendix E - RBA Media Release on Monetary Policy dated 5 April 2000...........39 Appendix F - RBA - Media Release on Monetary Policy dated 3 May 2000..........43 Appendix G - Statement on the Conduct of Monetary Policy................................45 Appendix H - Submission No.2: Notes on Bank Fees in Australia .......................49 )RUHZRUG In this report the Committee continues its review of the Reserve Bank of Australia's annual report for 1998-99 and the first Annual Report of the Bank’s Payments System Board. It also considers the Semi-Annual Statement on Monetary Policy released in May 2000. The report concentrates mainly on issues discussed in the May 2000 public hearing, which was one of the Committee's biannual meetings with the Governor of the Reserve Bank. These meetings are assuming a growing importance, as the role of the Bank and management of monetary policy takes on an increasing significance in the Australian economy. The Australian economy has now enjoyed nine consecutive years of growth and the stability of our monetary policy has been influential in continuing that growth trend. Nevertheless, the Committee has been concerned to see interest rates increased four times in six months. In undertaking this review of the Reserve Bank's operations, the Committee appreciates the assistance and cooperation given by the Bank’s staff. The Committee has once again been pleased with the level of professionalism demonstrated in their approach to the hearing and in the preparation and presentation of the Semi-Annual Statement for May 2000. The Committee also appreciates the briefings it received before the hearing from Mr Peter Osborne, Chief Economist with Merrill Lynch and Mr Barry Hughes, Chief Economist with Credit Suisse Asset Management. During the preparation of this report, the Committee and Secretariat were shocked and saddened to learn of the death of the Deputy Chair Greg Wilton. Greg was a major contributor to the bipartisan approach which this Committee has taken in its inquiries – he will be sadly missed. vi I thank all of the members of the Economics, Finance and Public Administration Committee for their contributions to the public hearing and to this report. David Hawker MP Chair 0HPEHUVKLSRIWKH&RPPLWWHH Chair Mr D P M Hawker MP Deputy Chair Mr G S Wilton MP Members Mr A N Albanese MP Ms A E Burke MP Mrs K E Hull MP Ms T Gambaro MP Mr M W Latham MP Mr C M Pyne MP Dr A J Southcott MP Hon A M Somlyay MP &RPPLWWHHVHFUHWDULDW Secretary Ms B Forbes Principal Research Officer Mr T Luttrell Adviser Mr D Richardson Senior Research Officer Mr K Bodel Administrative Officers Ms B Zolotto Ms S Rogers Ms L McIntyre 7HUPVRIUHIHUHQFH The Standing Committee on Economics, Finance and Public Administration is empowered to inquire into and report on any matter referred to it by either the House or a Minister, including any pre-legislation proposal, bill, motion, petition, vote or expenditure, other financial matter, report or paper. Annual reports of government departments and authorities tabled in the House stand referred to the relevant committee for any inquiry the committee may wish to make. Reports stand referred to committees in accordance with a schedule tabled by the Speaker to record the areas of responsibility of each committee. The Reserve Bank of Australia 1999 Report and Financial Statements (annual report) was tabled in the House of Representatives on 31 August 1999, and the Reserve Bank of Australia Payments System Board Annual Report 1999 was tabled on 29 September 1999. /LVWRIDEEUHYLDWLRQV ACCC Australian Competition and Consumer Commission CAD Current account deficit CPI Consumer price index DoFA Department of Finance and Administration EFPA House of Representatives Standing Committee on Economics Finance and Public Administration GDP Gross Domestic Product GST Goods and Services Tax OECD Organisation for Economic Cooperation and Development RBA Reserve Bank of Australia Y2K Year 2000 1 ,QWURGXFWLRQ Background 1.1 The Reserve Bank Governor's biannual appearances before the House Economics Committee have become a critical avenue of accountability and transparency for the Bank. Each event is watched closely by the parliament, financial sector and community. 1.2 With the Central Bank’s management of monetary policy playing an ever more significant role in the management of the Australian economy, these appearances are not only closely observed nationally but are also of growing international interest. 1.3 The background to these appearances is an agreement between the Treasurer and the Governor on key aspects of Australia's monetary policy framework.1 The Reserve Bank's Semi-Annual Statements on Monetary Policy, together with the Bank's annual report and the Payments System Board annual report, form the basis for discussion. 1.4 The procedural basis for the Committee's work is House of Representative's standing order 324 (b) whereby annual reports within a committee's area of portfolio responsibility stand referred for any the inquiry the committee may wish to make. 1 Reserve Bank of Australia. Report and Financial Statements, 30 June 1997. RBA, Sydney, pp 8-10. 2 Scope and conduct of the review 1.5 On 2 September 1999 the Committee agreed to review the Reserve Bank's annual report 1998-99.2 1.6 This report on the Committee's work focuses on that annual report, the Reserve Bank's Payments System Board