Reserve Bank governor Glenn Stevens warns 'years of hard work ahead' to repair budget
The Reserve Bank governor Glenn Stevens has warned that the next government faces years of hard budget repair work, and inflation will be difficult to lift.
Asked about his views on Treasury's economic forecasts versus the bank's own predictions, Mr Stevens said there was little difference between them.
However, he also warned that whichever party is elected on July 2 faces a long and difficult task of budget repair.
"The budgetary situation will be OK if nothing else goes wrong, but you can't really assume in life that nothing will go wrong over an extended period," Mr Stevens told a business gathering in Sydney.
"So I suspect that there's quite some years of hard repair work ahead for whoever is the government over the period ahead."
There are also significant challenges facing the next RBA governor.
Mr Stevens finishes in the role in September, and his current deputy Philip Lowe was recently appointed by the Federal Government to succeed him.
While Dr Lowe carries a lot of institutional experience and knowledge of the RBA and monetary policy, the man who headed the Reserve during the global financial crisis warned that the governor's job will not be getting any easier.
One particular challenge facing the new governor is the steep decline in inflation forecasts, to the point that consumer price rises might not reach the bottom of the bank's 2-3 per cent target range for another two years.
With many analysts predicting global growth and inflation will remain lower for longer, there have been some calls for the Reserve Bank to loosen, or lower, its inflation target.
Mr Stevens today rejected those thoughts out of hand.
"You wouldn't want to be without it [the target]," he said.
"It's not a rigid thing that demands kneejerk response."
'Best monetary policy framework we've ever had'
While acknowledging that it might not happen overnight, Mr Stevens expressed confidence that a rise in inflation would happen.
"I think it will work out in time and it will take some time," he said.
Mr Stevens pointed to the success of the target since it was introduced in the early 1990s in keeping price rises under control during a period where Australia has recorded a quarter of a century without a recession.
"We shouldn't give up and throw away a framework that has been successful," he said.
"It's the best monetary policy framework we've ever had."
One financial strategy that Mr Stevens again warned may not succeed is property investment based mostly on the expectation of capital gains from rising home prices.
"As much as that strategy has succeeded, it is not a great strategy," he said, repeating a warning he first gave in 2009 that debt-fuelled household consumption cannot continue indefinitely.
Source: ABC News