RBA’s Stevens exercises his jawbone, sees “material” fall in AUD “at some point”

Author: Adam Button | Category: Central Banks

RBA leader Glenn Stevens spoke with The Australian and took a few swipes at the Australian dollar but offered nothing on rates:

  • Says he has no particular view on rate cut expectations
  • Sees a downturn within the next 10 years “for some reason of some depth”
  • Full interview
  • Full transcript

He added in some jawboning:

He was optimistic about Australia’s outlook, but said it confronted challenges in the near future as the economy adjusted to falling investment in the resources sector and as central banks, led by the US Federal Reserve, started lifting their interest rates.

“We’ve got very low interest rates but quite a high exchange rate, so things pulling in opposite directions … the truth is, it would be foolish I think to pretend that one can precisely forecast in that effect of all those forces.”

He could not predict how long the bank would keep its cash rate at its current ­record low of 2.5 per cent, noting that financial markets were ­predicting a rate cut by early next year and a rate increase in the longer term. “I’ve got no particular view to report about that sort of expectations at the moment.”

The eventual increase in rates in the US, likely next year, would be disruptive to global financial markets and could be the catalyst for a fall in the Australian dollar.

“The likelihood of some disruption in markets is probably pretty high because it always is when the Fed eventually changes course. It’s hard to see how most of those metrics would have the Aussie dollar quite this high.

That’s why we’ve said that our sense is that some of the ­investors are maybe under­estimating the probability of a material decline at some point, but I can’t say when that might be.”

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