In contrast to the frequently Delphic utterances of American and European central bankers, Reserve Bank Governor Glenn Stevens' public pronouncements are mostly matter-of-fact and free of artifice. Addressing the Melbourne Institute's 2015 Economic and Social Outlook conference on Thursday, Mr Stevens gave a characteristically forthright assessment of Australia's economic performance seven years on from the global financial crisis of 2008 and as the powerful locomotive force of China's economy continues to wane. He explored medium-term budget repair and productivity improvements, and what policy settings and structural reform measures might best enable them. And, two days after the RBA's decision to leave the cash rate unchanged, he canvassed the possibility of future interest rate cuts to balance rising mortgage rates.
Eschewing the sometimes bleak assessments of Australia's present economic situation – and of its major trading partners – Mr Stevens was sanguine about future prospects. He noted that global growth "was still proceeding at a moderate pace", despite various threats, and that "for our part in Australia, we have managed the biggest terms of trade even for more than a century with, so far, some success". Resources sector capital spending had declined, but the non-mining side of the economy was generating "respectable growth in employment". The rebalancing of the economy was not "as seamless as it would be in an ideal world, but we don't live in a such a world".
Were new economic headwinds to spring up, however, Mr Stevens said the RBA retained the ability to ease monetary policy further. Indeed, the cooling housing market and a receding inflation threat had strengthened its ability to act.
However, he appeared to rule out a cash rate cut so as to cancel out the effects of recent bank mortgage rates, noting that in 2014-16, effective loan rates had declined by more than the cash rate, and that "a significant proportion of owner-occupier households were ahead of schedule on mortgage repayments".
Regarding Australia's medium term economic challenges, Mr Stevens was not as positive, suggesting weaknesses exposed by the GFC and our dependence on China had yet to be properly addressed. While the need for productivity gains, budget repair, and infrastructure provision was understood, and progress was apparent on some fronts, "my sense is that a fair bit of the necessary national conversation about how we pay for all the things we have voted for lies head. This doesn't imply a need for radical immediate action, but I suspect it does mean an unusually long period of tight budget discipline on recurrent spending is likely to be required".
Prime Minister Malcolm Turnbull will welcome Mr Stevens' mostly upbeat assessment of Australia's economic circumstances, not least because the successful implementation of his own reform agenda depends heavily on a stable and smooth-sailing economy. As skilled an advocate as he is, Mr Turnbull's reform agenda could easily be derailed by weak consumer and household sentiment, rising joblessness, or higher inflation. The not-unpromising economic scenario outlined by Mr Stevens suggests Mr Turnbull will have the room he needs to frame a narrative for change and to implement it according to plan.