Fed: Economists await "pearls of RBA wisdom"

AAP General News (Australia)
04-03-2008
Fed: Economists await "pearls of RBA wisdom"

By Colin Brinsden, Economics Correspondent

CANBERRA, April 3 AAP - Homebuyers may get a better clue whether their already ballooning
mortgage repayments will get any larger when Reserve Bank of Australia (RBA) officials
are grilled by politicians tomorrow.

Central bank governor Glenn Stevens and his deputy and assistant governors will face
the House of Representative Economics Committee in Sydney and can expect three hours of
tough questioning.

This is the RBA's first six-monthly hearing since the election and they will have to
contend with a new look committee which includes Liberal heavyweights such as opposition
treasury spokesman Malcolm Turnbull and former assistant treasurer Peter Dutton.

Mr Stevens will kick-off proceedings with a statement, which economists expect will
be a repeat of his recent statements including reaffirmation that monetary conditions
are tight enough to slow domestic spending growth and in time reduce inflation too.

"The Q and A session that follows risks being bogged down in political gamesmanship,
but should include some insightful pearls of RBA wisdom," JP Morgan chief economist Stephen
Walters said.

Retail sales data for February is due to be released while the hearing is taking place,
and economists expect it to confirm that spending has moderated under the weight of rising
interest rates.

The RBA left its official cash rate unchanged this week, but this followed back-to-back
increases in February and March, and a total of four rises since August, which has taken
the key rate to a 12-year high of 7.25 per cent.

Lehman Brothers chief economist Stephen Roberts says the governor is likely to be grilled
on whether monetary conditions have tightened too far, causing unnecessary financial distress,
particularly for lower income earners.

"Governor Stevens is unlikely to be drawn and is likely to stick to the established
RBA position that interest rates had to rise sufficiently to ensure that unacceptably
strong growth in domestic spending would slow."

The committee's chairman and Labor MP Craig Thomson says the governor will also be
questioned on retail bank profits in the light of their recent independent rate increases,
the impact of rising interest rates on employment, and mortgage and rental stress.

A survey released today by insurer AAMI found that 57 per cent of current renters believe
they will never be able to afford their own home with most blaming high interest rates.

It also found as rents are rising, many tenants are opting to sacrifice their home
contents insurance to be able to make the rent.

Just 57 per cent of renters have home contents insurance compared with 98 per cent of homeowners.

AAP cb/sb/imc/mn

KEYWORD: ECONOMY NIGHTLEAD

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