RBA chief Glenn Stevens talks down dollar in Canberra hearing 12:54pm: So given we had few questions on the direction of interest rates, what can we take from Stevens' comments today? RBS senior currency strategist Greg Gibbs says that "at the margin it might be regarded as a little supportive of higher rates, since the Governor has emphasised that the current level of rates is working to support the economy, suggesting that further rate cuts may offer little additional support." However on the economic outlook he remains subdued, continuing to look for below trend growth, so rate hikes are equally unlikely. 12:49pm: TD Securities' head of Asia Pacific research Annette Beacher has a go at the committee for a missed opportunity on asking Stevens about the direction of interest rates next year. We cannot believe the lack of focus about where interest rates are going from here. 9/10 questions have been about the reserve fund capital injection! Two hours into it and not one question about house prices and the RBA view. Beacher adds that there was not much of a reaction on the markets after an initial bump upwards by the Australian dollar. Way too much focus on the capital injection into the RBA's reserve fund in the first hour meant a lot of market participants quickly lost interest. Michael Pascoe: Something interesting finally on the chair's question on NZ's "unconventional" controls on housing. Governor says "unconventional" increasingly conventional. The option is open, but he's not convinced regulatory tools are silver bullets. Watch this space, work in process and we will be evaluating these things as time goes by. And so the hearings end with a reference to Casablanca. Off all the gin joints in all the world, Clive Palmer chose not to walk into this one. Weather no doubt more sublime on the Sunshine Coast than in Canberra. In summary, something for everyone, but nothing startling new. More healthy perspective from the RBA amidst the politics. The final area of at least considering regulatory controls if the housing market overheats probably the most "news," but each side will concentrate on their own versions of the RBRF story. Husic tries to score on what a tightening of fiscal policy in the next budget might do - and the governor again has something for everyone. Says there's not a case for a pronounced discretionary tightening, that he doesn't himself feel the debt requires us to adopt that level of austerity. It's a medium term issue. A swing of $10 billion in the deficit can occur due to parameter variations and you can't do much about it. But the conversation should be about what tax we're prepared to pay compared with what we want the government to give us. Not all the things that are out there are fully funded. Back to chair O'Dwyer for final non-RBRF questions and there's something that goes nowhere on Holden - think I'm missing Julie Owens, the previous chair of this committee. Jacob Greber, AFR economics correspondent: Kelly O'Dwyer asks the governor about claims from groups such as the Greens and some economic commentators that the GM Holden departure will trigger a recession. Stevens poor scorn on the proposition, saying "we know, don't we, that this decision been a long time coming. It's pretty hard to evaluate the claim that a shut down in two or three years from now is going to tip us into recession - that doesn't seem obvious to me. And three years time nobody is any good at forecasting the economy in all honestly. I don't think that's a claim that will bear much scrutiny. We have a manufacturing sector that's very much under acute pressure, but i don't think the holden decision as entirely, or even mostly about that, it was probably about a whole bunch of things. 12:26pm: Finally, a question on housing and macroprudential tools to cool a booming market. "We've never ruled out the possibility of using regulatory tools as a adjunct to our normal tools," Stevens says. There needs to be a period of how successful they have been. "But I am not entirely convinced that they are going to be the silver bullet as some think," Stevens adds, noting that he, like O'Dwyer, is also watching the New Zealand housing market closely. "Watch this space, it's a work in progress," he concludes. 12:23pm: O'Dwyer question on how significant the Holden pull-out for the Australian economy is. We know it's been a long time coming, Stevens says. It's had to evaluate that a shutdown in two to three years will tip us into recession now, he adds, noting that forecasting so far out is hard. We have a manufacturing sector that is very much under acute pressure, with the exchange rate being one [pressure] point. "If you could turn back time" - Cher and Kevin Hogan - to 2008, and Stephens proceeds to give fiscal and monetary policy a big tick, even with the debt numbers and projections in yesterday's MYEFO. Healthy perspective in this answer. Despite GFC, economy is 12 or 13 per cent bigger than it was in 2008, banking system stronger than it was then, unemployment rate higher than it was, but still pretty low on historical standards. We have a period of macro-economic success that other countries wish they had. We have a build up of debt, but that's medium term issue.Even with debt numbers yesterday and projections, a lot of countries would like to have them. We have problems and big challenges, but I'd rather have our challenges than those I see around the table of governors I sit with. Husic follows up by asking Stevens what he thinks of the three big risks facing the global economy - tapering, Europe's debt woes and the US debt limit - and whether any could hit in the first six months of 2014. Stevens declares "I think we probably will see tapering in that time frame." I think the US is probably going to be OK. Hopefully the Europeans can muddle along, hopefully things in China can work out, there's' probably a reasonable chance of that. The point is, that it's still a very uncertain world and I don't foresee, really...in any near term a return tot he kind of world we had from the mid 1990s to 2006, that's a period of apparent stability and predictability we'll look back [as] a golden period to which I don't think we'll be able to return to any time soon. Reserve Bank Governor Glenn Stevens Photo: Glenn Hunt 12:18pm: Stevens' sleeping patterns is back on the agenda. Stevens said earlier that he was not losing sleep over the RBBF He knocks on the table and says that in terms of his economic outlook for next year, he hopes that the US and other global economies will avoid the wobbles. It's a very uncertain world. ... It's hard to imagine in the near-term to return to the kind of the world we had in the years to 1996. It was a golden period to which I don't think we will return to anytime soon. 12:12pm: Stevens has a message for the politicians questioning him, when one plays down his power to influence policy in comparison to the RBA governor. A real world question from Craig Kelly - why haven't small business loan rates come down as much as others, gap between cash rates and small business loan rates has grown? Governor says "question whether there's adequate competition is an important one." Thinks we've focussed too much on mortgages when discussing competition, instead of on small businesses. But lending to small business is harder. Mortgage lending easy. Governor brings up a point that the family home has been the collateral for small business loans (whether a good or bad thing), but with lower home ownership trends, the lack of collateral could become a problem. 11:54am: Here's a bit more on PIMCO's report out earlier, which had a bearish take on the Australian economy. As business reporter Max Mason writes, PIMCO says a persistently high Australian dollar is thwarting the Reserve Bank of Australia's efforts to ease the transition of the economy away from mining. "Due to elevated cost structures and a high exchange rate, Australia Inc. is increasingly unable to compete in a fiercely competitive global market," PIMCO says. Read the full story here. Labor newbie, Pat Conroy, ex Combet staffer, ex AMWU national economist, back on the reserve funds issue. Shame there's no cricket on. Meanwhile Peter Costello has been named acting chair of the Future Fund until they find someone to replace Gonski who's off to the ANZ board. What bet "acting" becomes "permanent" soon enough? George Bailey of Australia catches out the final wicket of James Anderson of England from the bowling of Mitchell Johnson. Coalition MP Scott Buchholz, after more than two hours of questioning dominated by the Reserve Fund, turns the governor's attention to what he thinks is needed to produce prosperity. Or as Buchholz - puts it "what are the other policies that can make the horse drink?" Stevens reiterates the need for productivity growth, but swings the issue back on the committee and the need for Canberra to get cracking on productivity-enhancing reform. It's highly desirable that [productivity growth] speed up, but again there's no productivity lever that I can pull. The things that you do in the parliament have more bearing on it. It's about incentives, flexibilities and capabilities out there in the enterprises in our country. 11:42am: Question: What are the other policies can make the horse drink? Stevens repeats Lowe's comments that low interest rates are not what will lead Australia down the path of prosperity. He touches on productivity and talks about the need for incentives to build up skills and dynamism. Stevens adds that Australia is not the only country that has experienced a slowdown in productivity over the last decade. Even so, the level of output per person in Australia is short of what is seen in leading countries such as the US in some sectors, Steven says. 11:27am: Finally a question on Australia's largest trading partner, China. The expansion of China and the need for natural resources has been a powerful driver, says Stevens. The continuing China story, even at lower growth rates, is still going to be quite a powerful story, he says, adding that demand could also come from agriculture and services. I'm no expert in agriculture but the question for that sector is whether it is appropriately positioning itself to take advantage of the growth in Asian demand, Stevens adds. I don't have any prescriptions to offer, just those general observations. 11:23am: Just a heads-up if you have just joined the blog that you can watch Stevens' comments on this live parly stream. To recap, the discussion has been about RBRF, RBRF, RBRF, RBRF, Australian dollar, RBRF, RBRF, FX intervention, RBRF, RBRF, confidence ... Potentially most interesting question so far comes from Jim Chalmers as he looks for an RBA angle on the MYEFO forecasts, but it was his last question and batted away with confirmation that Treasury's MYEFO forecasts were catching up with what the RBA had published at the beginning of November. But now another newbie, Liberal David Coleman, fresh from the PBL/Nine Entertainment/Yellow Brick Road stable, can't help having one more nothing-happening reserves question before moving on to broad monetary policy discussion. What would Mark Bouris advise? Governor happier to be back on his building confidence/productivity turf. Political game back on. Another newbie MP, Dr Jim Chalmers - Wayne Swan's chief of staff - back trying to protect his ex-boss's reputation. Asks was it necessary for the 15% to be achieved in one hit - governor says it wasn't mandatory, faster is better, but instantly wasn't critical, "I never made that argument." Don't think Stevens is comfortable with this line of questioning - if only Clive Palmer was there to throw the switch to vaudeville. 11:13am: "Tapering" is well and truly in the markets' lexicon nowadays, with Stevens commenting that the June-September reaction by the financial markets re an expected stimulus wind-back in September was a "dress rehearsal" for when the real event does start. On a side note, has anyone out there used in the word tapering in any other context previously? Tapering ... can we blame Bernanke for introducing its use in our economics dictionary? Summarising the political game over the $8.8 billion: With two Liberals versus one Labor member trying to play the Governor, I'd score it a draw, which would suit the RBA. Yes, 15 per cent was the RBA's aspirational long-run target, not just a number Hockey made up. It wasn't a public number though - the publicly-stated goal was still 10 per cent over time - and the Governor couldn't quite put a date on when the board arrived at the 15 figure. But the RBA didn't ask for it from the new Treasurer until after the Treasurer effectively asked them to go away and think of what they'd like for Christmas. Stevens said that, if the RBA had tried to get to 15% just by retaining all profits, it would have taken 6 to 10 years. Instead, it happens overnight with the result that the RBA should be paying nice dividends to Joe, starting in August for the first Hockey budget. And if the Aussie weakens as the RBA thinks it should, they could be big dividends. The interest on the $8.8 billion Hockey has to borrow will meanwhile be attributed to all that Labor debt. A neat little political play by Hockey - just don't think about the cost to the taxpayer of the unnecessary interest payments on the extra few billion involved. Stevens asked by Mr Hendy, who represents Eden-Monaro, whether he would consider recommending the Treasurer appoint someone to the board in future who comes from an agricultural, regional or small business background. He responds by saying board members shouldn't be appointed on the basis that they represent any particular industry or region. I'm all for diversity... but the Reserve Bank board's decision are national decisions and [board members] are required and they do set aside any regional , personal and business interest at the door. Their job is taking a decision in the national interest. Oh dear - Hendy, newly representing a rural seat, uses his final question to make a plea for the next RBA board vacancy to be filled by someone from the bush or at least agriculture. Stevens says he's all for diversity, but members of the board shouldn't be appointed to represent this or that region or constituency. They're there to represent the nation and make decisions in the national interest. Hmmm, unlike the many parts of government... And it's off to morning tea. In response to a question from Liberal MP Peter Hendy - the former head of the Australian Chamber of Commerce and Industry - Stevens cuts to the chase on the Reserve Bank reserve fund and why it needs to be restocked - irrespective of the political debate. I don't think it's a good look [to be undercapitalised}. In that world there is the risk of uniformed commentary suggeing the RBA is broke, or something. While it was possible at one point that the RBRF could be negative, and it's still possible if there was as surge in the currency before the end of the financial year, we would come to work every day and do our job. But I'm concerned about the perception that may create... which is why the balance ought to be positive and a strong number. 10:42am: Tapering is *not* tightening, Stevens says, repeating Fed chairman Ben Bernanke's recent refrain. There's not much point complaining about it. It's just the way the world works," Stevens says about the quantitative easing and the start of tapering. He adds that it's not just the Fed that is carrying out quantitative easing. There are spillover from these things and the rest of us have to deal with it the best that we can. 10:34am: You can't get anywhere fighting a fundamental trend, Stevens says about how the Australian dollar was above parity for the best part of two years when the terms of trade was high. "We've lived through a very unusual period here," Stevens says. I thought about intervention more than once through the past several years. Despite the frustrations we've always had ... [a floating currency] by and large has worked very well. Jens Meyer, Markets editor: Despite Stevens' renewed attempt to talk down the dollar, the currency has actually moved sliughtly higher since he started speaking. Labor MP Ed Husic now pursuing a line of questioning aimed at determining whether Mr Stevens directly asked the new Treasurer Joe Hockey for the Reserve Bank to be recapitalised as soon as possible. Mr Stevens responds by saying the issue was "clearly on the table" when he met with Mr Hockey about the matter. He was clearly abreast of the situation and had his own views already in the public domain. Mr Stevens has also just declared that the issue of the Reserve Bank reserve fund's level "is a genuine risk here, it's a risk that the taxpayers in fact, carry. It is not a pretend risk, it's not made up, it's real, and in my opinion it's appropriate to put an amount of capital against that risk. But it hasn't meant that we've been unable to conduct monetary policy or do our financial stability matter and no one is suggesting that and the reason this has probably stressed. 10:25am: While Stevens continues to be questioned about the Reserve Fund, lets take a look at how the RBA's year ahead is set to be. Economists have been fairly mixed about when and if the central bank could cut the cash rate again - and when the first hike in more than two years could be. Westpac expects the RBA to ease rates again in May and August (revised from February to May). Other economists expect the Reserve Bank to stay on hold for the whole of next year. On the more optimistic range, others expect the RBA to raise rates again in the third or fourth-quarter of the year. Stevens: "I don't want to go through the exact detail of everything that was canvassed in that (first meeting with Treasurer-elect Hockey)." But Husic pushes on and gets: "I didn't go there asking for an $8.8 billion cheque and sign it now." The next line of questioning is on the level of the dollar and whether there's been any intervention to push it lower. Mr Stevens reiterates his signal first delivered in an interview with The Australian Financial Review last week that he believes the long-term level of the Australian dollar should probably be below 90 US cents. My judgement is that an exchange rate over a [US] dollar or even in the [US cents] 90s is unlikely to be a sustainable equilibrium for us over time. Mr Stevens also tells the committee, on the topic of intervention, that "we haven't been doing anything especially unusual just lately." You can read the full transcript of Stevens' interview with the AFR here. Governor says the board had thought 10% funds was the right number. Wilder exchange rate swings made them wonder if something else would be right. 15 is a long-run target, is pretty aspirational when the level is 2 or 3. 15 was a better long-run objective if we can get to that. O'Dwyer finally getting closer to where she wants the conversation to be: having the governor say it was the RBA's idea for Hockey to give $8.8 billion. But Stevens" answer is only "sort-of." The 15 had been long-run goal. No suggestion that the RBA said it needed to hit 15% immediately. The Stevens Q&A kicks off with questioning by LIberal MP Kelly O'Dwyer on the topic of the Reserve Bank's reserve fund, with the Coalition has promised to restock with a $8.8 billion grant. In what appears to be an endorsement of the government's position on the fund, Mr Stevens just told the committee it was "desirable on the earliest schedule possible" to rebuild that capital.Labor has questioned the urgency of the grant, saying the governor had only ever asked the previous government for the fund to be restocked gradually from retained earnings. Mr Stevens says it was important to "ensure our capital remains strong for whatever may come down the track in the future." 9:59am: As O'Dwyer continues to questions Stevens about the Reserve Bank Reserve Fund, here's PIMCO's bearish outlook on the Australian economy. Their main points in their analysis are: In 2013, real growth in business investment in Australia outside the mining sector slowed to almost zero, in part due to the high exchange rate. While some sectors of the economy such as housing appear to be improving, we continue to expect sub-trend growth in 2014 due to the subdued outlook for business investment. The RBA will most likely have to keep interest rates low for an extended period to ease the transition away from mining-assisted growth and encourage a weaker exchange rate. You can read the full paper here. Here's business reporter Max Mason's take. RBA has some optimism in the medium term, despite below-trend growth continuing for a while yet. Says Stevens: Over the more medium term, there are good grounds to think that growth can strengthen. Eventually more capital spending will be required in some of those sectors where it is very low at present. The corporate sector in aggregate has high reserves of cash, financial intermediaries and capital markets are willing to lend, and interest rates are low. If the nascent improvement in 'confidence' we have seen can be sustained, that will help to achieve better growth. In fact, we could aspire to a period during which growth could be a bit above trend for a while, since spare capacity in the economy has increased a bit over the past eighteen months or so. If you've missed the link to the statement earlier, here it is in its full glory. 9:44am: Has cutting the cash rate to a record low worked? Yes, says Stevens. Low interest rates are doing the sorts of things we expect them to do. This is the way expansionary monetary policy works. Reserve Bank of Australia Governor Glenn Stevens. Here goes RBA Governor Glenn Stevens fronting the House of Reps economics committee - and therefore exposed to questioning by Clive Palmer. Clive is there, I hope. It could be worse for the governor - he could be trying to question Palmer, a particularly futile pursuit. But Palmer isn't the only interesting newbie member of the house economics committee. Joining him will be two Queensland-raised Ph Ds from opposite sides of politics but with plenty of experience. Among other things, Dr Peter Hendy is a former chief executive of the Australian Chamber of Commerce and Industry and was chief of staff for Brendan Nelson when he was opposition leader. Dr Jim Chalmers was chief of staff for Treasurer Wayne Swan for his last term and deputy chief of staff and principal Adviser during his first term. Both should know where plenty of bodies are buried and understand the issues better than most. And then there's another newbie, young Pat Conroy, who includes being national economist for the AMWU for four years before working for Greg Combet for the past five. It could make for a more interesting discussion - if Clive lets them speak. 9:25am: The Australian dollar has been heading in the right direction as far as Stevens is concerned - down. Ahead of the hearing, the currency slipped past 89 US cents, a level it has not seen since August. Financial markets have been generally cautious ahead of the release of the US Federal Reserve's statement tomorrow at 6am AEST. They've increased their expectations in recent weeks that the central bank could start to trim its unprecedented monthly bond-buying program as soon as tomorrow, following improved US economic data. You can read more on the dollar here.