Transcript of Question & Answer Session Fireside chat at the Barrenjoey Economic Forum

Well, I am very excited this morning. Obviously the host of the economic forum. We’ve just enjoyed a great global scene setting and of course pivoting back to Australia, the country we all live in and what better way to do it than with a fireside chat with RBA Deputy Governor Andrew Hauser. I’d ask you all just to take a moment to join me in welcoming Andrew and thank him for his time. So I also personally want to thank you. I know how busy your diary is. So to make the time to come here today, I truly value.

Thank you.

I also know there are lots of people in the room are looking forward to the opportunity to ask some Q&A. We will have some time for audience Q&A, please make sure your questions are ready, don’t be shy. Before that, of course, it’s you and me. I’m incredibly excited to talk to you. This fireside has come at an opportune time. Sandwiched between the domestic CPI data yesterday and the end of the tariff pause tomorrow. Maybe CPI is a good place to start. We obviously got the quarterly and monthly CPI data yesterday. The June quarter trimmed mean coming in at 2.7 per cent. The bank had already communicated a little bit of upside risk to their last published forecast to 2.6 per cent. There are plenty of investors in the room today. Perhaps can I ask you any reflections you have on the data and the outlook?

Well, Jo, thanks very much for the invite. It’s great to be here. The data yesterday was very welcome. I could stop there. But let me just step back a second and remind you of something I know you know, our strategy for some time has been to set interest rates to bring inflation back sustainably, that’s an important word, to the midpoint of the 2 to 3 per cent target range. And to do that through a policy that is gradual, considered, measured, there’s lots of words, predictable, we might come back to that word. In a way with the goal of protecting the gains to employment, which is important and is part of our objective. In the - I always call it Q1, the March quarter of this year, quarterly trimmed mean inflation which you should know is our preferred measure of underlying inflation was 2.9 per cent. That was in the band but only just. And we said at the time, we cut interest rates twice, 50 basis points at the start of the year, that we were looking for more evidence that inflation was moving sustainably back to the midpoint and we’ve had another piece of that jigsaw yesterday. So as I say that number is welcome. In fact, 2.7 there or thereabouts, very much as we had expected as you say, maybe plus or minus a little bit, the quarterly inflation rate in trimmed mean was actually 0.59 and our team took some pleasure from the fact that their forecast actually at the time of May was 0.59. In part my job as one of the older hands is to say be careful, you won’t get that kind of forecast accuracy very much. I know others used words like outstanding, superb and so forth, it’s very welcome because it’s my job to be slightly more boring.

Indeed, it’s interesting that forecasting to two decimal places has become the norm, it wasn’t the case at the start of my career.

No, it isn’t now and I’ll come back to this maybe later. You can’t expect that degree of accuracy. We used to spend years at the Bank of England years ago looking at inflation at 2.01, 1.99, people started to go to the third decimal place. It’s luck when you get that close and we have to remember to be humble in that respect.

Forecasting is a humbling experience. Let’s stick with inflation. The Governor has consistently reminded us, including last week, that the quarterly trimmed mean measure is really what anchors the Reserve Bank’s view. From November we will have what the ABS is calling a full monthly CPI, 87 per cent coverage on that, globally comparable. There is, of course though, a transition period. I know not everyone in the room follows CPI quite as closely as perhaps others do. There’s a transition period because 10 per cent of the basket will have difficulty being seasonally adjusted and that of cause is very important for trimmed mean. We understand the RBA has requested the ABS to continue to publish the quarterly trimmed mean under that old methodology, I’m just interested in how is the RBA planning to manage that 18 month transition period with the data.

Let’s start actually by saying how much we welcome this monthly measure. I had to adjust back when I came from the UK to a world in which you only really know where inflation is once a quarter, that’s quite challenging when it’s your main target variable. It’s fantastic news and we should give credit to the ABS David Gruen for doing that. It’s taken some effort and IT work and so we’re very grateful for that. As you say, we’re all going to have to go on a bit of a learning journey. The seasonality of this measure will be something that we will have to get to understand in the first period. Some of the underlying data series have only been gathered since last year. You can’t possibly know the seasonal pattern of a series that we don’t even have a couple of years’ data for. We usually have a three year criterion for understanding seasonality. There are other things too, there’s a different scope, there is a different mechanism for doing the trimmed mean mechanism on a monthly basis. We will learn and we will do that in part by looking at the monthly trimmed mean alongside the quarterly trimmed mean which as you know the ABS will continue to publish for a period. Better information, more frequent information is unambiguously good news. We have lots of people, as you do too, very adept at crunching those data. We’ll probably put some kind of communication out, probably in the November SMP, that sets out the metrics we’ll use and how we’ll think about it. We’ll be learning and I know so will you. In fact, you put out, you told me nobody read your analysis. I’m sure you read it closely.

Andrew asked me how many of our clients actually read our report, so you’re all on notice.

You did a very good and probably a more comprehensive piece than I’ll be able to cover on this topic so read that.

Thank you for that, Andrew.

Do I get a bonus?

Absolutely. You get a muffin on the way out.

That’s quite cheap.

Fortunately you’ve got to run off. Let’s move away from inflation. Tariffs, obviously very topical to Australia. We don’t have a trade deal. We’re highly exposed through -

We do have a free trade agreement.

We do have a free trade agreement. We don’t really know where that lands in the next 24 hours or so. It’s been a rollercoaster I think it’s fair to say, as Ajaj talked about. We’re looking at a 15 per cent lift in the average US tariff rate. By any measure that’s a material lift in tariffs. The financial markets seem broadly unphased. You spoke at the Economics Society of Australia conference recently and you said markets can seemingly shrug and move on. I’m not going to ask you to comment on that, but I did want to ask you, do you think the global economy and Australia can do the same?

There are three maybe four reasons why so far maybe the impact is - well, the impact is substantially better than those of us had feared in the worst case. That’s a rather convoluted way of putting the simple point. I think there are three broad reasons for why that might be. One is that the worst of the threatened tariffs haven’t eventuated. That not just true of the US, it is particularly true in terms of retaliation. Everyone looks at that chart of US tariffs going back to the 30s and goes, oh my gosh, isn’t that terrible. That’s a real increase clearly if it persists. But if you plot the same chart, and I don’t know if you’ve done this for world tariffs it’s harder to do. The pickup is there but it’s much more modest, in the order of a couple of percentage points if you estimate it. If you think about the global impact, as opposed to the impact on the US, because of that lack of retaliation, because some of the biggest threats haven’t eventuated you start from the point of, who knows what tomorrow will bring or the next day or the next day, you start from a place where the policy decisions have been less severe than they could have been. That’s step one. Step two which I know Ajay was talking about, maybe the system globally and perhaps in Australia too is more resilient than what we first feared. That would be good news. We’ve seen a lot of stockpiling, we’ve seen a lot of trade diversion - that’s been fascinating with the speed and scale that has occurred. Some of the portfolio shifts some people in the room are still thinking about haven’t yet eventuated – hedging ratios have perhaps moved quite a bit but underlying positions don’t seem to have moved as much.

AI and all the other things Ajay was talking about. Let me get to the third reason and I’ll come back to the second. The third reason which is more worrying and I say this particularly as someone who comes from the UK, it’s coming but hasn’t come yet. Why do I say the UK point, because you may remember when Brexit occurred, everyone rushed to the exit gate and nothing happened. My goodness me 10 years on, I think it’s fair to say things are happening. And so we need to be able to think a bit careful about doing it as well, that global economy is a rubber ball. It will bounce perfectly back and nothing will happen. If those tariffs stick, there’s a real tax increase. Someone has to pay it. There’s obviously an interesting question about who. Good news it hasn’t been as severe yet as we feared. Good news for Australia as well. We’re paid to worry. Some of that possibility that it’s actually a bit more drawn out rather than it’s nothing to worry about is certainly on our mind.

Thank you. A key focus of investors and lots of people in the room today is around the neutral rate for Australia.

You told me you spent more time on that issue than any other.

I did tell you we get a lot of inbound questions. A lot of that, of course, has come off the downward revision to the median of the RBA’s model of estimates. As economists we know that the neutral rate is unobservable. But we do see other central banks, like the RBNZ, for example, who do publish estimates of their neutral rate. I’m not going to ask you where Australia’s neutral rate is but I did want to ask you what you think the downside of such a strategy is?

When I was at the Bank of England one day a junior analyst sent a very genuine email saying “can someone tell me where to find the neutral rate on the system”. Some wag wrote back saying “the same place as NAIRU and the solution to world peace.” That was a bit cruel. You can’t find it on the D drive, let’s put it that way. Let me make two points about this. One, I think - I don’t know how interested investors are in some concept called the neutral rate, the rate at which when all shocks have worked through the system, the real rate, not the nominal rate, settles. That’s a very conceptual concept, and you’re talking at about five or 10 years, I’m not sure how many people trade at that level and are interested in that. What I sense is that people want to know where interest rates are going. Also the history to that debate in Australia. There’s a history to that debate everywhere. My answer, if that’s the question, which I wouldn’t frame as a neutral rate, is go and look at our forecast. We’ve tried to take account of all of the available information and say, what is the outlook for inflation, unemployment, growth and so forth, conditioned on a particular path for interest rates. Our forecast in May, we’re obviously working on a new one now, was that with interest rates following a gradual and gentle path down to about 3.2 at the end of our forecast period, inflation would come back to target.

Now, it takes a little bit of intellectual agility to work out what that means but I would say not very much. I would gently and humbly encourage people to pay a bit more attention to that forecast than perhaps some people do. We do also publish a famous chart or r-star which I’m sure everyone in the room has pored over. I’d start by reminding, the range of estimates on that is 1 per cent to 4 per cent. I have no idea how anyone could trade on that basis of that range. We put a middle point in as well, maybe that was am mistake, but what that range is supposed to try and draw out is that the different models we use give you very, very different answers. At best they’re a cross check to that forecast. That they are not something that drives the policy board’s thinking about where interest rates should go. Some people put weight on some of them, some people put weight on none of them. We put a comment in the minutes many people picked up on, that it was possible in very central banking language, a bit like the welcome thing, but it was possible that people put a bit more weight on that than they should. I would remind people of that. If we added another model into that range tomorrow and we easily could do so, it could be on the upside, it could be on the downside, that average might change by 50 basis points. That wouldn’t be a meaningful indicator for the future of policy. Look at our forecast. Listen to what the Governor says at the press conference. Read the minutes. Those are the things that will give you insight about thinking about the outlook for the economy and the appropriate response for policy.

I really appreciate that answer because we’re now going to grab the transcript and use that every time somebody asks where we think the RBA think the neutral rate may be. I want to move to another unobservable concept which is full employment. Governor Bullock spoke around the labour market last week. I’m interested in exploring though the RBA’s evolving strategy in the context of the labour market. In particular, I guess the Fed also have a dual mandate but one interpretation of the way that the Fed run with that is that they have been guided to eliminate shortfalls in full employment, rather than minimise any deviation in either direction. In a sense, they worry only when the labour market is worrying and they don’t worry when it’s strong and of course that’s where we are in Australia. The labour market has consistently surprised both the RBA and all economists in a good way over the last year. So I guess my question is, does the RBA think about that labour market concept, given their dual mandate, in the same way as the Fed?

Let me start with a brief word on the labour market. Obviously the Governor gave a speech last week, if anyone hasn’t read it, I would recommend you read it. There was quite a lot of excitement about the unemployment number that came out. I just want to re-underscore the point she made in that speech which was those numbers were in line with our forecast. In fact, on a quarterly average they were bang in line with the forecast. They were consistent too with the broad coming into balance in the economy that we need to see for monetary policy to work. As you say, there’s a lively debate about exactly how tight the market is. We have that debate on the Board and we have it outside the Board. I think that’s a good thing. There are different views on the Board about exactly how tight the labour market is, but on any measure unemployment is still historically very low and I spend quite a bit of time going out around Australia, speaking to firms to get a sense of their economic conditions. It’s quite clear that it’s easier than it was to find the right member of staff but you’re paying the going rate for it and the search process takes time. So whether you call that tight or full or whatever you might call it, this is a labour market that is close to whatever full employment means and we can debate about exactly whether it’s above or below or how far below.

On your question about strategy, and you and I had a bit of an exchange about this, the Fed introduced a new framework in 2020 - 2021 which some people call FAIT - Flexible Average Inflation Targeting – it has two features which were designed to create an asymmetry. One was that if you had a period of undershooting you could tolerate a period of over target inflation, and the other one was and you say this, it’s quite a subtle edit which says that the committee should take account of shortfalls of employment from full employment, which people read to mean, okay if it’s above full employment that shouldn’t be relevant for policy. The challenge for the Fed, and I don’t wish to chuck any other central bank under the bus is the moment they introduced this asymmetry which is designed to get them out of the zero lower bound situation, inflation went to the moon and many of those components of the framework were either switched off effectively or formally and are now the subject of the review that Jay Powell has said he wants to try and get done before he leaves office next year. So I don’t know that that framework is particularly active, that element of the framework, sorry, in the US and to be frank it isn’t part of the framework here. We take account of all macroeconomic drivers when we think about inflation and we certainly take account of where we think the labour market is. And, look, let’s not forget the enormous gains in employment that have occurred over the past two or three years. That’s part of the RBA’s remit and it’s a very welcome result of a lot of different policies, not just monetary policy. But monetary policy has played its role in delivering what I think by most measures you have to say is close to full employment.

Thanks for that. Talking about reviews, obviously you’ve joined the RBA at a time post their own review. Some

You also spent many years at the Bank of England, of course, and that international perspective is one of the reasons why you’re sitting here today and one of the reasons that we really value from you, Andrew. One of the most recent elements or changes, of course, has been the decision to publish unattributed votes and encourage public addresses by Board members.

Yep.

For financial market people everyone’s very excited by these unattributed votes, as you can imagine, people are starting to put charts together on dovish and hawkish and the like. I guess I wanted to ask you, given that global experience and that experience at the Bank of England, what are your observations on the evolving process of the RBA which has a number of elements behind it?

I mean, look, point number one is of course I don’t have a baseline. I actually have had many contacts with the RBA over the years and very positive ones, but I don’t have a baseline for where the policy process was some years ago. I should make that very important point. I’d say there are three elements of the setup here that appear quite different between the UK and Australia. When you delve behind them they’re far less different than you might think. The first is in the UK obviously the MPC consists largely of professional economists, not entirely but mainly, and in the RBA it’s a broader set of people. I think the set up here has many merits, let me put it that way. You get a bunch of economists in a room and I’m sure they have great insight but they also love to debate about things that are not always first order important. My model is better than your model, etcetera, etcetera. Obviously there are other benefits but there’s that. I think we have less of that. I think what we also have, and it’s very much each system has to be designed for the country in which it’s working, is we do have a breadth of perspective and if you think about it and I could run through we have a couple of academics, people who are on the boards of large companies, we have Marnie who has just joined who has the experience of running a bank and is very passionate about regional Australia. We have Iain Ross who understands about wage setting and labour markets. That’s a really rich set of experience. Again, I don’t have a baseline and I know there are different views about this but this is a pretty active debate that occurs on that Board and that’s a good thing. The vote in a way just throws light on that. I think it’s obviously interesting and kept us awake a bit. The very first time we disclosed votes we also had a split vote but I think in a way, and given we see some chatter and I might get a question about that particular decision, showing that the Board had a range of views about that outcome, I think probably helped. I hope if it helped you to understand it wasn’t the monolithic, there’s only one view, my way or the highway. That’s not how it works on the Board. We don’t name names. We’re told not to and we choose not to.

That’s to keep the focus on the arguments and that’s something the whole Board is very passionate about. In our judgment and the judgment of those who wrote the Statement on the Conduct of the Monetary Policy, it’s more likely to lead to a more open debate on the Board and externally if you take the names and the personalities out of it. On the hawkish measures, I used to - I know Millennium is here, other hedge funds are available but some hedge funds used to spend a lot of time modelling what they thought were the individual reaction functions of each MPC members were. It’s a mug’s game. There’s no rule that would describe how they behave. So I think that probably is a bit of a red herring. I know it’s exciting but it probably wouldn’t give you deeper insight on that. There is one other component that’s different and that’s that in the MPC, the committee owns their own forecast, whereas in the RBA it’s the staff forecast. The RBA staff are fantastic and the forecast is excellent. One of the merits of the UK approach of owning a forecast is that you’re forced to think ahead. Policy has to be forward looking, of course it has to be forward looking anyway. It also provides a framework where people can hone in on the areas of the economy where they have the strongest disagreement and think about interaction between policy and the outlook for the economy. Those are all quite nice features in my view of a close ownership arrangement between the forecast and the Board and it’s something to reflect on to make sure we get those kinds of ownership things in the future.

I appreciate your candour with that answer. I agree with you. I actually think the split vote was comforting, given most economists, whilst they perhaps had forecast a cut, most economists were saying it’s a very, very close call and it’s a probability game and I think that split vote is a reflection of where the economy is. It’s a complex time. Now, talking of time, I am conscious of time and I did promise to keep some time for audience Q&A. I’m going to ask one more question and then we’ll go to the audience. I just wanted to bring it back actually to the economy and the cycle we’ve talked about the labour market, inflation. I wanted to talk a little bit about the consumer. The largest part of the economy and I think it’s fair to say household spending has underwhelmed in the first half of this year. Jono is always telling me, all the things that support higher household spending are in place. Real disposable incomes are rising, house prices are rising, we’ve had interest rates cuts, tax cuts and the labour market is still tight. Yet it looks not terrible but a little mundane given all of that. I’m keen to understand how you’re seeing the consumer at the moment?

Yeah. It’s an important question for all the reasons you say. We have seen some recovery in consumers’ growth. Let’s start there. We do expect to see more. Our forecasts, like I suspect yours and others, have persistently undershot for the reasons you described. That’s despite taking account of income and wealth, the effect of interest rates and the effect of tax changes. People will legitimately say of course it hasn’t been strong because you’ve had tight policy and X, Y or Z. We’ve tried to take account of those things and there’s still an unexplained element as you rightly say. A clue is clearly in consumer confidence, consumer confidence here is pretty weak. That’s not unique to Australia. It’s a pretty common feature of most developed economies and it hasn’t picked up very much as the economy has started to recover. It hasn’t got worse. I think we put some weight on that. It hasn’t got worse as the global uncertainty has improved but it hasn’t got worse but it hasn’t got better either. Why is that? Because as you know if you’ve got consumer confidence you go, well, it’s regrettably called the misery index over time, which is unemployment plus inflation, people don’t like being able to work and people don’t like high inflation. Unemployment is low and inflation is coming back down to target, you might expect consumer confidence to recover and it hasn’t done so. If you put that question to someone on the street they go, economists, what a ridiculous thing. Why are we depressed? Real income has been very weak. The price level is, what, 20 per cent, 15 per cent higher than it was three years ago, every time I go to the shops I’m reminded of that fact. Go and check your head if you can’t understand why consumer confidence is weak. You might call that scarring effects of past weak real income growth whatever you want to call it. It is a fact. It is actually quite hard to model this effect in any effective way. You try and put price levels in, past real income growth in, we have a lot of clever people working on this, you can’t get a stable model. There’s something special happening this time, relative to the past.

There are reasons for optimism for the future, one of which is that real income growth has began to grow quite strongly. It’s now 1.7 per cent in the March quarter. The savings ratio is back to its pre-COVID average now having been quite persistently below. We are beginning to see, in some countries, a pickup in consumption growth as well. Maybe this time the consumption pickup will prove to be true. This is one of the areas of debate on the Board to be on honest. How much momentum there is in the economy and for some of those who don’t think rates should be quite as high, they would say they have downside risk worries about this. Maybe consumer confidence will persist at a very weak level. Maybe people will wake up to what’s going on in the global economy and become more concerned about future employment prospects, so I think on balance we’re obviously going to continue to hope and pray and forecast that consumption growth will pick up. Like you we are struggling to understand the full reasons for that driver.

I’m glad we’re not alone in that. We do, as you said, Andrew, in our forecast have a pickup in consumption. Some of that does require households to start to draw down on some of their savings rate. We did run and publish a bit of a thought experiment of what happens if that doesn’t happen, through into inflation and GDP and the outlook gap.

Of course, if incomes keep recovering and consumption doesn’t pick up you will get a substantial pick up in savings. That maybe where people choose to be but that is obviously - I’m sure you did - but it’s worth working through the economic consequences of that as well.

We can share that with the clients in the room. So I’m going to open up to questions to the audience. Again, if I could ask you to share your name and organisation.

I’m an equity investor. I spend a lot of time talking to corporates. You’ll be pleased to know six weeks ago I went to New Zealand and I saw what bad looked like in terms of central bank policy and the impact it has on the economy. I then became a fan of the RBA and in terms of what it’s done

Only then?

What corporates keep worrying about and you haven’t talked about the crowding out of the private sector over the last few years and they keep worrying about the Victorianisation of the Australian economy and the policies that Victoria has implemented against business so to speak, and the worry that they have that that’s going to spread up the east coast. But I guess my question to you is because we’ve got the productivity roundtable coming up, what would the RBA like to see from it, because the one thing that corporates obviously can see a shining light and we heard from Ajay this morning, is that AI is something they can hang their hat on in terms of getting some cost savings and expansion in their margins. What is the RBA looking for in terms of – out of that productivity roundtable?

Let’s be clear. Ajay was talking about being at Lord’s, you’re going to see some quite boring cricket shots here I think, let’s be clear, policy towards IR - Victorianisation by the way to a UK person means something quite different to what it might mean to you - those policies aren’t for us. We take the economy as it is and we deliver our mandate which is low and stable inflation and full employment. Those are political choices. They’re choices that are based on the democratic process and any central bank that gets into that space takes risk with its own credibility and ultimately probably undermines the economy rather improves it. I’m sorry for that bit of theology but I think it’s important. It’s for others to deal with and we take the outputs from that. It obviously is the case that productivity growth in Australia and in most other developed economies with the notable exception of the US has been very weak. Level of productivity roughly the same as where it was 10 years ago. That’s a screaming siren for all of us and something that we need to focus on and it is very good therefore that we are focusing on that. The level of productivity growth in some senses sets the speed limit for the economy and that therefore means the weaker economic growth, the slower we can keep demand growing in order to hit the inflation target. Actually coming back to the consumption debate, one of the very interesting questions will obviously be, let’s suppose productivity remains weak, consumption doesn’t pick up very much, people say that must be because policy is too tight. It may very well not be. It may be that’s the speed rate of the economy. It is lower than we wish it was. It’s lower than it has been in the past. We shouldn’t be loosening rates, the need to speed that economy up lies with other people.

I’ll make one other point and it links to the point I already made, Australia is not alone in this. I think what is quite interesting, a similar debate going on in the UK where growth has been really absent, you might say it’s because of Brexit. Every country thinks the reason for our weak productivity should be very local concerns and frankly that’s what’s happening in Australia as well and maybe it is. Or maybe in fact the cross-cutting themes, you talk about technology, AI, competition, these rather broader and macroeconomic concepts are more important than some of the individual policy choices that are politically driven rather than anything else. I think the roundtable, it will be fascinating to be honest, it’s public knowledge the Governor will speak on the first day to set out the high-level challenges of the kind we have already talked about, it will be fascinating to see what comes out of that process. It is well timed. Australia has had a fantastic productivity story over the longer run. I’ve talked about this before, I was just up in the Pilbara last week, you want to see productivity go up and there look at the scale and the efficiency and sheer impressiveness of that operation but most of that is productivity level, not productivity growth. It’s a mature business. Where that next wave of growth is coming from for you particularly as an equity investor, I’m sure if you can get ahead of time you’d be very welcome, is a crucial question for the economy. One that we all await the answers to with great interest.

The Governor mentioned last week that the next SoMP will include some information around the Bank’s work around productivity and their underlying assumptions to that. Any other questions?

Thank you for your time today. I wanted to ask you a question around protecting the gains of employment which we started out on. RBA has been good at forecasting the rise of unemployment to 4.3 per cent but you’ve sort of got 4.3 per cent as the unemployment rate now as far as the eye can see.

That was May. That’s the most recent forecast.

That’s the most recent we can look at. If we’re feeling more confident on inflation, how should we think about the evolution of unemployment from here? If it was continue to rise, is that moving away from protecting the gains in employment or is that something that can be continuously updated and forecast, I guess?

Look, I mean you were going to ask me a question - sorry, it’s not that we arranged this in advance. You were going to ask me a question about what my favourite chart was, let me start there. One of my favourite charts is one that you probably just flick through if you look at the Statement on Monetary Policy which is the cones of uncertainty around these individual variables. We talked about .59 of quarterly inflation, 4.3 on unemployment, that cone around unemployment which is simply based on our past forecast errors for unemployment is really wide. 4.2, 4.1, 4.3, they’re great outcomes but they’re within such a tiny range relative to past experience. So we could easily get surprised by unemployment or other macroeconomic variables on either side and we’d obviously have to react. If you think, and I don’t know how much forecasting you do yourself in your job, if you think that the economy is relatively close to balance then our job, and this isn’t going to be easy, it’s a bit like how I was shown how a helicopter pilot works to keep this thing in perfect equilibrium is to keep the economy close to balance and inflation close to the mid-point, employment close to full employment and react to shocks either side of that as we see. That won’t be an easy thing to pull off. I’m not sure many central banks have in the past have pulled them off and I’m not going to claim we will manage to do so but obviously if unemployment did rise sharply and it is within that band of my favourite chart we’d have to react. I know that’s not a very full and complete answer to your question. It’s not in our central case and our forecast but it’s clearly a possible outcome.

… we’ve got time for one more question.

Just a question about those speeches from individual Board members that are going to be taking place. Will those Board members be able to speak as individuals and give their own opinions on the direction of monetary policy and the economy or are the speeches going to be a reflection of the Board’s collective view at a given point in time and vetted by RBA staff?

That was a very directional question. We’re still working that out, I’ll be totally honest with you. The idea of the public engagement approach is a broad one. So you bring it down to speeches and our Head of Comms, you’ve got David here, will often say to us, speeches are a thing of the past. We need to engage more like this and in podcasts and other things. That’s a rather superficial point. I just made the point whether these things amount to speeches, theological edicts from on high, we’ll see because we’re trying to move our communication approach forward a bit. It’s also about listening. It’s also about getting out to public events and hearing from communities and businesses and how the economy is operating as well. I just want to make that point that the definition of public engagement under the SCMP and in our own minds is broader than just these sort of edicts from individual members. It will be important when individual members speak, just as it is when I speak and the Governor speaks, that we don’t identify the views of other individuals or indeed of ourselves. So the challenges I think you rightly say will be to ensure that we do throw light on to the range of debates in the economy without breaching that important principle. It is an important principle. I think you will find the quality of debate internally and I fear externally too - I think you’d like it for a day, a week, and I think you’d then hate the petty behaviour that occurred when individuals felt that they had to defend their own positions and actually if I’m totally honest that’s what’s happened in the UK. Certain individuals begin to feel they have to explain themselves every minute of every day. Jo Masters the equivalent in the UK needs to know exactly what I think. No, you don’t. You know full well what they think and by the way they are not influencing the centre of the debate, be careful is what I say, it’s a 24-hour joy followed by a great deal of regret, hangover the fore or whatever, I don’t know. It will be important to tread that line. As you say, there is no point in individual members of the Board speaking if all they do is parrot “this is what we agreed” and let’s finish. We have to throw light on the debate in the Board. We have to do it in a way that respects that rule that has been agreed with the Treasurer. It’s not just our self-imposed ruled and ensures that the quality of the internal debate continues. We’ll have to get that right and it will be tricky. I hope all of you, including the ABC, will report it in the general sense of wanting to get a deeper understanding of policy and the outlook and where it’s going. And I do genuinely believe in this. I’m a big believer in this vote, disclosure. I genuinely believe it will make a more grown up and better debate but we will have to feel our way a bit and if there’s mistakes along the way I’m sure there will be and we’ll have to work out how to deal with them.

Hopefully you’ll be operating in a world of grownups. Over to you.

I wanted to ask you about the central bank’s communication. You mentioned in passing the importance of predictability. There has been some criticisms about the Bank’s communication, particularly the market being caught unaware about the no interest rate change in July. There’s also a school of thought there amongst some seasoned watchers that you as the deputy need to be getting out there more and talking and communicating about what the Bank’s view is on the economy, given that Michele is a bit constrained because she’s doing eight press conferences a year. She’s only doing two or three speeches as a result of that. What would you say of those criticisms?

So on the first point and you’re talking about July, make a couple of points. I’d say the policy ought to have two goals. We should be trying to set policy right and in a way that is predictable. On the whole those two should overlap. Before we go to July just go back to, and I’ve only been here 18 months, I go back to the past 18 months and I’d say, look, if you look on average at how market pricing has responded to data which I think is the best test of whether people genuinely understand where the RBA is going, on the whole I’d say those market reactions were broadly in a sensible place. I think we took some comfort, and I think others in the market did too, that there was a pretty decent level of understanding about where the RBA was going. And so for the vast majority of occasions those two goals of hopefully getting it right, I say hopefully, and being predictable have been highly overlapping. So let’s not declare this to be some sort of catastrophe, I know you’re not, before it is. There were some very specific challenges as we go back to May rather than July, and we talked about at the beginning Ajay talked about it too, where there was a dramatic set of information about the change to what you might call the rules of the global economy and we alongside others put a whole range of scenarios out about how this might play out, including some very negative ones.

It is true in May in particular the Board discussed, well, what if it is 145 per cent on China? What if everyone in the EU reciprocates and a global trade war breaks out? Fairly quickly, the discussion was that we’ve got room to move policy and we would move policy. That was something of an innovation for us and we’ll keep refining how we do that. Obviously whenever you do scenarios like that, people think what probability are they putting on this? Wow. If they’ve gone to the extent of putting this out to the public, they must be thinking this is a quite likely outcome. We didn’t think it was a likely outcome. The Governor said it at the press conference it wasn’t a likely outcome, that the discussion around 50 didn’t take much time. Maybe the market formed a view that it was actually a more likely outcome after May than it was. If you look back - it’s rare, but when the RBA has surprised the market to that extent before, there’s only a handful of occasions, they almost all happened in the context of very large global events. When everyone was scrambling to work out which part of the probability distribution are we actually on. Wow, maybe the RBA is going to do this, maybe the RBA is going to do that. Of course, the honest truth is everyone was learning how to think about that large shock at the same time. I think that’s quite instructive. We wouldn’t expect this overlap between doing the right thing by the data and doing the predictable thing to be as weak as perhaps it was in July. Me getting out more, I mean, I could be available 24/7 if you like. Slightly ironic you’re making that point when we’re in a place -

We welcome you any time.

In the UK TV if this happened you’d have someone come up and put tape across the name. I’m sure this will help you. I’m very happy to get out and about and describe ourselves. I actually did quite a bit, I suspect the statistics will show that I have been out and about quite a bit. I’m not just doing it in Sydney and Melbourne. I’m out in the regions and in the far-flung bits of Australia doing it as well. Very happy to do more of it. To some extent in this idea that if you just listen carefully enough, you’ll get the truth, is slightly misleading. To some extent what we’re going to tell you is that we’re uncertain. We’re feeling our way, it’s a board decision, not an individual decision. So the irreducible uncertainty of policymaking is something I think we’re all getting a little bit more comfortable with and there will be shocks from time to time but I don’t expect that you will see a whole sequence of us hopefully doing the right thing, but the unpredictable thing again. It will happen from time to time, it is not our norm.

And I think that’s a great place to wrap it up. Personally from me, Andrew, thank you so much again for making the time and for your candour today. It is always a delight for me to chat to you. And if everyone could just welcome - help me, sorry, to thank Andrew for his time and candour today.

Thanks, Jo.