Philip Lowe: Remarks at Darwin Community Dinner
Remarks by Mr Philip Lowe, Governor of the Reserve Bank of Australia, at the Darwin
Community Dinner, Darwin, 2 July 2019.
* * *
Good evening.
A very warm welcome to this community dinner with the Reserve Bank Board and senior staff.
This morning the Board held its monthly meeting here in Darwin. We were very kindly hosted at
the Northern Territory Parliament building. The last time the Board met in Darwin was more than
50 years ago. I am sure that we all agree that this was too long ago. I can promise that you will
be seeing more of us over the years ahead. This evening I would first like to talk a little about our
history in the Northern Territory and how things have changed and then talk about today's interest
rate decision.
The previous Board meeting in Darwin was held on 5 June 1968. The Board met here to
celebrate the opening of the RBA's new branch on Bennett Street. We operated out of this
building for around 30 years, distributing banknotes and providing banking services to the
Northern Territory Government. But beyond this, as many of you will know, the building on
Bennett Street has played an important role in the history of Darwin. It was one of the few
buildings that was virtually unscathed by the fury of Cyclone Tracy in 1974. This meant that in the
aftermath of Tracy, we were able to make our banking chamber available to the police to use as
their emergency coordination and communications centre.
In some ways this experience symbolises the RBA itself. We build on strong foundations, we
place great weight on stability and resilience, and we seek to serve the public interest. Our
presence here in Darwin did all this. I am very pleased to see that the building is still serving the
public interest as the location of Tourism Top End.
In preparation for our meeting today, I looked back at our archives for details of the meeting in
1968, including the Minutes of that meeting, which I am glad to be releasing today. That meeting
was the second last for Governor Nugget Coombs before he retired. Reading this archival
material reminded me of how much the world has changed.
One obvious change is in the way that monetary policy works. The main decision made by the
Board at that meeting back in 1968 was that Dr Coombs recommend to the Treasurer that he
adjust the interest rates on trading bank fixed deposits and saving bank deposits by a quarter of
a per cent. From today's perspective, this is remarkable on two levels. First, the RBA was just
making a recommendation to the government - this was obviously before the days of central
bank independence. Second, monetary policy was exercised partly through direct controls on
bank deposit rates. So, it was a very different world. Today, the Board makes its decisions
independently of government and we don't directly control bank interest rates for households and
businesses.
Another difference that struck me was the way the Board worked and its approach to risk
management. In 1968, the Board was made up of nine men; no women at all. This is very
different from our Board today. In 1968, the Board also took advantage of the trip to Darwin to
make a one-week tour of northern Australia, visiting Gladstone, Weipa, Gove, Kununurra, the Ord
River, Dampier, Mt Tom Price and Alice Springs. Almost the entire Board travelled together on a
private chartered plane. Today, our risk management guidelines wouldn't allow this. They don't
allow us to travel all together and we certainly don't take private planes. And unfortunately, the
demands of today's globalised world make such an extensive trip very difficult in 2019.
One other area where there has been much change since the Board last met here is in the
relationship between the Original people of this land and the wider Australian community. In his
last months as Governor of the Reserve Bank, Nugget Coombs began work as Chair of the
Council for Aboriginal Affairs. The Council was established by Prime Minister Harold Holt after the
1967 referendum. Coombs worked tirelessly for almost three decades advocating for Indigenous
rights and social justice. He was a strong advocate of land rights and encouraging pride in the
identity of Indigenous Australians. He cared passionately about their welfare and the preservation
of cultural values and traditions.
Over the years, Nugget Coombs developed a particularly strong relationship with the people of
Arnhem Land, especially with the Yolngu around Yirrkala. You might recall that they were
responsible for the Yirrkala bark petitions submitted to the Australian Parliament in 1963. The
Yolngu wanted to be consulted as the traditional custodians of the land before the government
granted mining rights. These petitions were an important step towards the native title rights that
exist today. Coombs travelled to Yirrkala many times, the first time being shortly before the Board
met here in 1968. He wanted the interests of the community to be recognised and was looking
for ways that its members could benefit from the new bauxite mine at Gove.
Tomorrow, I will have the great honour of being able to travel to East Arnhem Land and Yirrkala
just as Nugget Coombs did. I am incredibly pleased to be accompanied on this trip by Susan
Moylan-Coombs. Susan was born in Darwin and is part of the group known today as the Stolen
Generations and was adopted by Nugget's oldest son, John, and John's wife, Jan. Susan is
continuing her Grandfather's work as a tireless advocate for the welfare and prosperity of
Indigenous Australians. We will be accompanied by two members of the Reserve Bank Board:
Phil Gaetjens, who is also Secretary of the Australian Treasury, and Catherine Tanna, who is
also Chief Executive of Energy Australia. We are all greatly looking forward to the visit. We want
to pay our respects to the traditional owners of the land and to learn from their wisdom. We will
also unveil a plaque to Nugget Coombs, whose ashes are buried both at Yirrkala and the
Australian National University in Canberra, which he helped found in 1946. I am hopeful that our
visit will help keep alive the long relationship between the RBA and the people of East Arnhem
Land.
Turning back to today's Board meeting, we had a thorough discussion of the Northern Territory
economy. We discussed the difficulties that you have faced as investment has fallen following
the completion of the LNG plant. The effects of this decline in investment are evident right across
the economy: in the housing market; in retail spending; in the labour market; and in public sector
finances. As we reviewed these indicators, though, we were struck by the fluidity of the labour
market and the population here in the Northern Territory. Despite employment falling significantly
over the past year, the unemployment rate remains below the national rate.
At our Board meeting we also discussed the future opportunities facing the Northern Territory
economy, including in the areas of defence infrastructure, tourism, the cattle industry, and in
minerals and gas. In addition, we considered the progress that has been made in addressing the
sources of disadvantage for Indigenous Australians. There are many areas where Nugget
Coombs would have been pleased to see the progress that has been made. But, regrettably,
there are too many areas where not enough progress has been made and where the progress
has been too slow.
I would now like to turn to today's interest rate decision.
As I am sure you are aware, this morning the Board decided to reduce the cash rate by a quarter
of a percentage point to 1 per cent. This follows a similar adjustment last month. This easing of
monetary policy will support jobs growth across the country and provide greater confidence that
inflation will be consistent with the medium-term target of 2 to 3 per cent.
Our assessment is that despite the Australian economy having performed reasonably well over
recent years, there is still a fair degree of spare capacity in the economy. It is both possible and
desirable to reduce that spare capacity. We should be able to achieve a lower rate of
unemployment than we currently have and we should also be able to reduce underemployment.
If, as a country, we can do this, we could expect a further lift in wages growth and stronger
growth in household incomes. These would be good outcomes. As I hope you are aware, the
Reserve Bank's monetary policy framework is centred on the inflation target, but the ultimate
objective of our policies is to promote the collective economic prosperity of the people of
Australia.
In the Board's judgement, the easing of monetary policy last month and this month will help
promote our collective welfare. At the same time, though, we recognise that the benefits are not
evenly distributed across the community and that there are some downsides to monetary easing.
Partly for these reasons, over recent times I have been drawing attention to the fact that, as a
nation, there are options other than monetary easing for putting us on a better path.
One option is fiscal support, including through spending on infrastructure. This spending adds to
demand in the economy and - provided the right projects are selected - it also adds to the
country's productive capacity. It is appropriate to be thinking about further investments in this
area, especially with interest rates at a record low, the economy having spare capacity and some
of our existing infrastructure struggling to cope with ongoing population growth.
Another option is structural policies that support firms expanding, investing, innovating and
employing people. A strong, dynamic, competitive business sector generates jobs. It can help
deliver the productivity growth that is the main source of sustainable increases in our wages and
incomes. So, as a country, we need to keep focused on this.
To repeat the point, it is important that we think about the task ahead holistically. Monetary policy
does have a significant role to play and our decisions are helping support the Australian
economy. But, we should not rely on monetary policy alone. We will achieve better outcomes for
society as a whole if the various arms of public policy are all pointing in the same direction.
The two cuts in interest rates the Board has delivered recently will make an important
contribution to putting us on a better path and winding back spare capacity. It is also worth
drawing your attention to a few other developments.
First, borrowing costs for almost all borrowers are now the lowest they have ever been. As an
illustration, the Australian Government can borrow for 10 years at around 1.3 per cent, the lowest
rate it has faced since Federation in 1901. It is also able to borrow for 30 years at an interest rate
of less than 2 per cent. Private businesses and households also face low borrowing rates. This
is not only because official interest rates are low, but because credit spreads are low too.
Second, Australia's terms of trade have risen again, largely due to higher iron ore prices.
Investment in the resources sector is also expected to increase over the next few years, after
having declined steadily for almost seven years. To be clear, we are not expecting another major
mining boom, but we are expecting a solid upswing in the resources sector, which will help the
overall economy. I hope that, in time, the effects of this upswing will be felt here in the Northern
Territory too.
Third, the exchange rate has depreciated over the past couple of years and, on a trade-weighted
basis, is at the bottom end of its range of recent times. This is helping support important parts of
the economy.
And fourth, we are expecting stronger growth in household disposable income over the next
couple of years, partly due to the expected implementation of the low and middle income tax
offset. Stronger growth in incomes should support household spending.
Together, these various developments will help the Australian economy.
At the same time, though, we need to watch global developments very closely. Over recent
times, the uncertainty generated by the trade and technology disputes between the United States
and China has made businesses in many countries nervous about investing. Many are preferring
to sit on their hands, rather than commit to capital spending that is difficult and costly to reverse.
The result is less international trade and a weakening trend in investment globally. If this
continues for too much longer, the effects on economic growth are likely to be significant. For
this reason, the risks to the global economy remain tilted to the downside.
The combination of these persistent downside risks and continuing low rates of inflation has led
investors around the world to expect interest rate reductions by all the world's major central
banks. In Europe and Japan, official interest rates are already negative but investors are
expecting the central banks to go further into negative territory. And in the United States,
investors are expecting a substantial reduction in interest rates over the period ahead. This is
quite a different world from the one we were facing earlier in the year.
What all this means for us here in Australia is yet to be determined.
We need to remember that the central scenario for both the global and Australian economies is
still for reasonable growth, low unemployment and low and stable inflation. As I discussed a few
moments ago, there are a number of developments that are providing support to the Australian
economy. So we will be closely monitoring how things evolve over coming months. Given the
circumstances, the Board is prepared to adjust interest rates again if needed to get us closer to
full employment and achieve the inflation target in a way that supports the collective welfare of all
Australians, including those who call the Northern Territory home.
Thank you once again for joining us this evening and for listening.
Related Information
Minutes of the June 1968 Reserve Bank Board meeting
Historical photographs of the Reserve Bank's presence in Darwin