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RBA to be tested on rate policies


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If the Reserve Bank has any second thoughts about signalling an end to its interest rate cuts, federal parliamentarians again have a chance to tease out those doubts.

RBA governor Glenn Stevens and his economics team face three hours of grilling by the House of Representatives economics committee in Sydney on Friday.

The central bank again left the cash rate unchanged at a record low of 2.5 per cent at this week’s monthly board meeting, where it has stood since August. It says monetary policy is “appropriately configured”.

While it expects to hold rates stable for now, some economists still believe there could be another rate cut because of rising unemployment and an economy that has been slow to transition from mining investment to broader-based growth.

The RBA expects economic growth to strengthen, helped by continued low interest rates and a lower exchange rate.

While this week’s national accounts showed the annual growth rate rose to 2.8 per cent in 2013 – helped by strong exports – it remains below a trend rate of just more than three per cent.

JP Morgan chief economist Stephen Walters believes the RBA faces an “unusually complicated” policy dilemma, but expects it would likely need a succession of weak data for it to revert back to signalling further rate cuts.

“RBA policy turns like a super tanker, not a skiff,” he says.

While he does not expect Stevens’ opening statement on Friday to deviate from the board’s views, the subsequent question-and-answer session should be more instructive if the governor chooses to acknowledge the recent weakness in employment and business investment.

The governor last faced the house economics committee in December, delayed by the timing of the September federal election.

Committee chairwoman and Liberal MP Kelly O’Dwyer tabled the findings of that hearing this week, agreeing that monetary policy settings were “appropriate”.

In a separate statement, the committee said this time it would be particularly interested in seeking the RBA’s views on the recent G20 accord to increase global growth and the policy settings needed to achieve it.

Stevens co-hosted the G20 meeting with Treasurer Joe Hockey.

Finance ministers and central bankers from the world’s largest economies agreed to lift global growth by two per cent above the present trajectory during the next five years.

Economists expect other topics of interest to the committee will be the housing market, job losses at Qantas, the Australian dollar and any implications for Australia from events in Ukraine.

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