Contents

Chairman’s foreword
Membership of the Committee
Terms of reference
List of abbreviations
Chapter 1 Introduction
Chapter 2 Monetary policy and other issues
Appendix A — Submission
Appendix B — Hearing, briefings, and witnesses
Appendix C — T hird statement on the conduct of monetary policy
Appendix D — Glossary of terms

Chairman’s Foreword

Australia’s current economic expansion has continued for an unprecedented 15 years. This is an enviable performance and one which many western countries would like to emulate. The Reserve Bank of Australia (RBA) has played a critical part in this success by carefully monitoring inflation and conducting monetary policy so that it contributes to the stability of the Australian currency, the maintenance of full employment, and the continuing economic prosperity and welfare of the people of Australia.

This long period of expansion has resulted in capacity constraints which are creating some inflationary concerns. The RBA is quick to point out that full capacity is not something to fear. For example, the unemployment rate is the lowest in 30 years. Nevertheless, the RBA, taking into account capacity constraints and domestic pressure on prices, together with rising global inflationary pressures has recently raised rates taking the cash rate to 6.25 per cent.

The RBA advised that the current level of interest rates were in the ‘neutral’ area where interest rates are having neither an expansionary nor contractionary affect on the economy.

In relation to housing affordability, the RBA was surprised at the enormous public focus placed on the recent rate increases and their apparent impact on housing affordability. Mr Macfarlane, the then Governor of the RBA, suggested that the real problem for people was not the rate increases but the fact that houses were so expensive.

During the examination of housing affordability, scrutiny focused on the role of state governments in relation to land release. Mr Macfarlane commented that the reluctance to release new land plus the new approach whereby the purchaser has to pay for all the services up front - the sewerage, the roads, and footpaths - has enormously increased the price of the new, entry level home.

The public hearing held on 18 August 2006 was particularly productive and marked the final appearance of Mr Macfarlane who retired during September. I take this opportunity, on behalf of the committee, to congratulate Mr Macfarlane on his leadership of the RBA over ten successful years and commend him for his outstanding contribution to the stability and growth of the Australian economy.

I would also like to take this opportunity to welcome Mr Glenn Stevens as the new Governor of the RBA and look forward to formally meeting with him at the next public hearing with the RBA in February 2007.

The Hon Bruce Baird MP

Chair

Membership of the Committee

Committee Secretariat

Terms of Reference

The House of Representatives Standing Committee on Economics, Finance and Public Administration is empowered to inquire into, and report on the annual reports of government departments and authorities tabled in the House that stand referred to the Committee for any inquiry the Committee may wish to make. The reports stand referred in accordance with the schedule tabled by the Speaker to record the areas of responsibility of the Committee.

List of abbreviations

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