Ensuring the stability of the financial system, and the role of monetary policy, will be one of the major challenges in this decade and beyond, Australia’s central bank officials say.

Another issue, which came out of the response to the 2008-2009 global financial crisis, will be the how fiscal and monetary policies interact, according to a paper presented to the Reserve Bank of Australia’s (RBA) 50th anniversary symposium in Sydney on Tuesday.

Considerable debate about the role of monetary policy in responding to risks to an economy’s financial stability remains, the paper compiled by governor Glenn Stevens and officials Adam Cagliarini and Christopher Kent noted.

“A degree of caution is certainly warranted,” they said.

“Monetary policy can’t resolve every problem and central banks must always be wary of burdening policy with multiple goals, especially given the limited instruments at hand.”
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Australian banks were able to raise more than $160 billion on international markets through the federal government’s wholesale funding guarantee, Treasurer Wayne Swan says.

Mr Swan on Sunday announced that the wholesale funding guarantee, along with the guarantee for deposits over $1 million, would end on March 31.

The Financial Claims Scheme, which is a free guarantee for deposits up to $1 million, will continue until October 2011 and provide certainty for 16 million Australians over their bank deposits.

Mr Swan told parliament in a ministerial statement on Monday that the wholesale funding guarantee had been central to Australia’s response to the global crisis.

“It gave our banks continued access to global capital markets on competitive terms, allowing them to raise more than $160 million,” he said.
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Federal Treasurer Wayne Swan has accused the opposition of voodoo economics, saying its credibility on the subject is a “smoking ruin”.

His comments came after the Reserve Bank predicted on Friday that the Australian economy would grow by 3.25 per cent in 2010, and by 3.5 per cent next year.

“I welcome these stronger forecasts, but we certainly can’t take these stronger forecasts for granted,” Mr Swan told reporters in Sydney on Friday.

“I think we can be optimistic about the future, but there is certainly no room for complacency.”

The government was at one with the forecast views of the central bank, but Opposition Leader Tony Abbott was practising voodoo economics, Mr Swan said.
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Reckless federal government spending is to blame for plummeting housing finance figures, Shadow Treasurer Joe Hockey says.

Total housing finance by value fell 1.6 per cent in November, seasonally adjusted, with a drop in owner-occupied housing commitments having the biggest impact.

Australian Bureau of Statistics (ABS) data shows housing finance commitments for owner-occupied housing fell 5.6 per cent for the month, seasonally adjusted.

The result was much worse than economists’ predictions of a 0.5 per cent drop.

Mr Hockey blamed the federal government’s stimulus spending for the fall, saying it had to led to higher interest rates.
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Australians are losing faith in the federal government because it can’t save money to keep the economy in a good state, Opposition Leader Tony Abbott says.

New opposition finance spokesman Barnaby Joyce said on Friday the states were carrying $170 billion in debt and rising interest rates were affecting their capacity to make repayments.

“I would say in some instances they do not, particularly Queensland,” he told Fairfax Media.

When asked if he was concerned about state governments defaulting on their debts, Mr Abbott said it’s important to have sound public finances.

“Under the coalition (government) we had very strong fiscal surpluses, that’s certainly the objective of the coalition,” Mr Abbott told reporters in Sydney.
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The federal opposition is being irresponsible by proposing to break up big banks to boost competition, the government says.

Opposition finance spokesman Barnaby Joyce says the concentration of banking interests has put banks in a position where they can raise interest rates by as much as they wish.

Westpac lifted its mortgage rates by 0.45 of a percentage point, almost twice the 25-basis-points rise in official rates handed down by the Reserve Bank of Australia last week.

Senator Joyce says divestiture laws could be introduced that would allow the government to break up merged banks if they abuse their market position.

Deputy Prime Minister Julia Gillard says Senator Joyce’s suggestion is irresponsible.
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Federal employment Minister Julia Gillard has shied away from speculating on another interest rate rise in February on the back of Thursday’s positive jobs figures.

But she has once again reminded Australians that rates will not stay at what have been called “emergency levels” forever.

Positive figures for Australia’s jobless rate have increased the odds of the Reserve Bank implementing a fourth consecutive interest rise when it meets in February.

“I won’t speculate about what they may or may not do in the February board meeting,” Ms Gillard told ABC Television on Friday.
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Prime Minister Kevin Rudd and Treasurer Wayne Swan are the new champions of economic management.

A majority of voters believe the economy would have been in a worse state from the global economic crisis if the Liberal Party had been in power, a new survey released on Tuesday showed.

The Liberals - once seen as the superior managers of the economy under John Howard and Peter Costello - appear to have lost their credibility in opposition, with an Essential Research poll finding 41 per cent of respondents saying the economy would have been worse under their control.

Only 36 per cent said it would have been better, the weekly online poll showed.
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The federal opposition doesn’t believe there’s any justification for an interest rate rise this week, but says government spending will eventually force the Reserve Bank of Australia’s (RBA) hand.

But Treasurer Wayne Swan has no intention of ending the government’s stimulus measures, saying it is not a time for “victory laps” even though Australia has performed better than any other advanced economy.

The RBA holds its October board meeting on Tuesday against a general expectation that it will keep the official cash rate at 3.0 per cent for a sixth straight month.

There are a few market economists who think the RBA will take the plunge this week, but a majority believe it will hold off until November.
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Having coerced the boss of the nation’s central bank into expressing his thoughts on the federal government’s stimulus measures, was anyone listening?

Opposition parties seem to have come away from the inquiry into how the government is spending taxpayers’ money propping up the economy with the same pre-conceived concerns that they had going into Monday’s hearing.

This is despite Reserve Bank of Australia (RBA) governor Glenn Stevens appearing relaxed about this whole stimulus business - not necessarily what the opposition wanted to hear.

Its argument is that given the surprising strength of the economy, interest rates will be higher and the debt burden more onerous than need be unless the spending is wound back.
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A Senate inquiry into the federal government’s $42 billion stimulus spending has only heard half the story due to the tactics of coalition senators, committee members say.

Treasury secretary Ken Henry was due to appear before a Senate Economics References Committee in Sydney on Monday soon after Reserve Bank governor Glenn Stevens.

His appearance has now been delayed until the next hearing, set for Canberra on October 9.

Committee chairman Alan Eggleston told the hearing that the delay was agreed to by committee members as Treasury had been unable to provide a written response to preliminary questions posed by the committee.
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Former prime minister Paul Keating has criticised the Rudd government for not doing more to preserve competition in the banking sector.

Mr Keating also warns that the growth of the big four banks during the global financial crisis presents a “systemic risk” to the Australian economy.

While governments were preoccupied with protecting their economies from the worst of the crisis, Mr Keating maintains the Rudd government could have done more to preserve competition in the banking sector.

“That’s what happens in a crisis, everyone runs for cover,” he told ABC Radio on Wednesday.
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Senators heard both sides of the economic divide at an inquiry on Monday to determine whether the federal government’s economic stimulus has worked and whether it should continue.

Quizzing several academic economists, the inquiry heard that the stimulus was a waste of money, that the recession was a normal part of the business cycle and should have been left for the free market to resolve.

It was also argued that the human tragedy would have been far worse without the billions of dollars stimulus, regardless of whether it results in higher interest rates and higher taxes.

Indeed, one economist believed more money should be spent on lifting the unemployment benefit to stimulate the economy further.
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Prime Minister Kevin Rudd has told US television network CNN that the immediate withdrawal of financial stimulus from the global economy would be “misplaced”.

Mr Rudd is in New York for a climate change-focused session of the United Nations General Assembly, before heading to Pittsburgh, Pennsylvania, for the Group of 20 (G20) developed and developing nations meeting later this week.

He told CNN that the federal government’s stimulus packages and infrastructure investment had insulated Australia from the worst of the global financial crisis.

“We’ve managed to be the only economy across the OECD (Organisation for Economic Co-operation and Development) in the last 12 months to have generated positive growth … the only one to stay out of recession so far, the second lowest unemployment, the lowest debt, the lowest deficit,” he told his American audience.
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Only the Chinese are more satisfied with their government’s response to the global recession than Australians are with the way Labor has handled the crisis.

Nearly 70 per cent of Australian respondents to a poll, conducted for the BBC World Service, were satisfied with the Rudd government response.

That was the second-highest rating amongst 20 nations, but well behind the 88 per cent backing Chinese respondents gave their government.

The average satisfaction rating among the 22,000 respondents worldwide was 44 per cent, the Program of International Policy Attitudes and GlobeScan poll found.

“It is clear that citizens are still not seeing the kind of economic leadership they think is needed from their national government,” GlobeScan chairman Doug Miller said in releasing the report.
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