Australia's central bank warns China overheating
Updated
Australia's top central banker says an overheated Chinese economy is having an impact on Australia's inflation rate.
Presenter: Stephen Long
Speakers: Maree Bashir, The Governor Or New South Wales; Glenn Stevens, Reserve Bank Chairman
MARIE BASHIR: Mr Stevens we welcome you back most warmly back to your university and thank you joining us tonight.
(Applause)
STEPHEN LONG: The Governor of New South Wales Marie Bashir, introducing the Governor of the Reserve Bank.
Glenn Stevens may be the highest profile graduate of the Economics Faculty at Sydney University, and last night he was peppered with some tough questions from fellow alumni, such as why keep jacking up rates to keep inflation within a narrow target band, when inflation is being driven by soaring global oil prices, which the central bank can't control.
AUDIENCE MEMBER: Why can't you change your mantra and say “Ok, from now on the band is going to be between three and four per cent or whatever, three and five?”
STEPHEN LONG: This was the Reserve Bank governor's response.
GLENN STEVENS: Actually that was precisely the thinking of the 1970s. That is how we got 10 per cent inflation by saying, “Let's just live with it. It is a bit too hard to control it”.
STEPHEN LONG: A Chinese economy running red hot is making the Reserve Bank's task much tougher.
GLENN STEVENS: China is probably, I would say at this point, overheating and needs to slow down but I don't think there is any doubt that, short of some cataclysmic event, is going to, on average, continue to grow pretty quickly. Probably be unstable from time to time.
STEPHEN LONG: Glenn Stevens’ views on China are significant. A red hot Chinese economy is driving up the price of Australia's mining exports. That's boosting national income and the central bank fears it could blow out the inflation rate.
After China came the inevitable question, which the Reserve Bank Governor ducked,
AUDIENCE MEMBER 2: Can you make some comments as to the Government's … the new Federal Government's first Budget, and the impact that may or may not have on the inflation challenges in the economy?
GLENN STEVENS: Well, two days after the Budget, the Treasurer is very busily explaining it and defending it. I don't think it would help for me to chip in from the sidelines.
