Reserve Bank of Australia Annual Report – 1960 Introduction

At the beginning of 1959/60 there was a small margin of unused resources and some expansion of bank lending seemed appropriate. This margin, however, was being quickly absorbed and as the year progressed there was growing evidence of expenditure pressure on resources.

The year was a prosperous one for most Australians. Wages and profits rose strongly, and many farmers benefited somewhat from higher prices. Capital inflow from abroad increased further and, apart from its effect on the balance of payments, contributed to an atmosphere of buoyancy within the economy. Disquieting features of the year were the substantial rise in prices generally and the development of a speculative atmosphere in the markets for shares and land.

During the year import controls were progressively relaxed and in February licensing was almost completely abolished. The full effects of these relaxations are not yet apparent. By the end of the year the import flow had increased to a rate which, if maintained, would involve a considerable reduction in international reserves in 1960/61. This increase in imports may prove temporary but it becomes urgent that internal expenditure should not be allowed to rise above that necessary to sustain high production and employment.

This is the more important since, if Australia is to derive the maximum benefit from international trade made possible by freer imports, the movement in costs relative to those of the rest of the world will need to be kept under control. If this is to be done and advantage taken of opportunities, a high level of investment will be essential to sustain the growth of productivity. Such investment will need to be backed by an adequate volume of domestic savings.

In recent years savings have been stimulated by the emergence of new financial institutions offering varied types of securities adapted to the needs of a much wider range of potential investors. At the same time, the rapid growth of such institutions also makes funds available as the result of the rearrangement of existing assets, without corresponding saving from current income and consequently without releasing corresponding real resources. The pressure of these funds is reflected in speculative conditions in security and real estate markets. To the extent that these conditions arise from the rate of development of these financial institutions and the rearrangement of assets which they stimulate, they are likely to prove temporary and some reaction could occur as the possibilities of asset rearrangement are exhausted.