RBA flags ‘immediate’ virus impact, ‘profound’ climate hit to come – The Australian Financial Review

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13.Feb, 2020 0 news

RBA flags ‘immediate’ virus impact, ‘profound’ climate hit to come – The Australian Financial Review

“It is having a major effect on the education sector – we are probably feeling that more than many other places.

“The number of Chinese tourists coming to Australia has skyrocketed over recent years and they are the biggest source of foreign tourists to Australia now,” he added.

“Obviously that has stopped and we have had some incidents over the last couple of weeks where Chinese companies have called force majeure and interrupted exports and imports with Australia.”

He said while we will see the effects of that “when we get the GDP data for the current quarter”, he was remaining optimistic as infection rates appeared to be slowing.

“Just in the last few days the infection rate appeared to be coming down,” Dr Lowe said. “If that continues you could have reasonable optimism … and the Chinese authorities have made it very clear they are going to stimulate in response to this.”

‘Profound’ economic implications

Dr Lowe also weighed in on climate change, saying that while central banks should “stick to their knitting” there was no way of avoiding the financial impact.

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“Addressing climate change isn’t something that is a core responsibility of the Reserve Bank of Australia, but what we do have a responsibility to do is to understand the economic and the financial implication of climate change,” he said.

“The economic implications are profound.

“The world is getting hotter and the climate is more variable. We’re seeing already in Australia, perhaps more than anywhere else in the world, the effects of that.”

The RBA governor warned that climate change was affecting insurance costs, the energy sector and consumer confidence.

“Climate change is affecting the nature of production in Australia, the nature of investment, ultimately the nature of our exports,” he said. “At the moment, I think it’s affecting confidence of people and therefore ultimately spending.”

Dr Lowe said there was a growing impact on the value of assets as some would be stranded and others lose value but great opportunities as other assets gain value.

“When asset values change, the value of balance sheets change and that has financial implications for institutions and asset managers,” he said. “We’re not responsible for designing climate change policy, but we are responsible for understanding implications of it.”

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The RBA Governor made a point of emphasising there were good reasons to remain optimistic but did again take aim at business for failing to lower excessively high return hurdle rates.

”We’re going to be in this (low interest) world for a long period of time”, he said, adding low interest rates could be around “for years, possibly decades”.

Business Council of Australia CEO Jennifer Westacott said Dr Lowe’s concerns about low private investment “was music to my ears” because it made the case a long sought incentive should be included in the budget.

“It’s the private sector economy that is not doing the work,” Ms Westacott, also co-chair of the Australia-Canada Economic Leadership Forum said.

“It’s the poor investment and we are arguing for this investment allowance that we need to create the structural incentive for companies to invest.”

“Our view is the budget has got to tackle that business investment because it has the twin effects of creating more economic activity but particularly of driving productivity and wages.”

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