Australia’s top central bank official yesterday ruled out intervening in currency markets to rein in the booming local dollar, which is squeezing some industries.
The Australian dollar is trading around US$1.0434 and has been consistently above parity with the greenback this year, about 70 percent higher than the lows it experienced during the global downturn.
Canberra has previously warned that the Australian dollar is likely to remain at a high level for years as it comes to be seen as a safe bet amid global turmoil.
However, the strong currency — which first breached parity with the greenback in October 2010 — is hurting some local industries, with tourism, manufacturing and education exports particularly hard-hit.
Reserve Bank of Australia Governor Glenn Stevens told a parliamentary committee that he thought the currency would be trading lower, given slowing global growth and changing circumstances for terms of trade.
“I’m surprised it’s not lower, but it’s not a significant error,” he said, while adding that buying massive amounts of foreign currency to put a lid on the Australian dollar’s rise would be too risky to taxpayers.
“In extremis, you can argue it should be done but it’s a big call and it’s not a call we feel should be made at this point in time,” he said, effectively signaling that the market would determine the local currency’s strength.
He added that he sees no immediate sign of an end to the country’s mining boom, a day after Australian Resources Minister Martin Ferguson declared it was over.
The Reserve Bank of Australia predicted in its quarterly outlook on monetary policy this month that the boom would end “somewhat earlier than previously thought,” putting it at “sometime in 2013-14.”
Stevens said there was no reason to alter his view that the pipeline of projects that helped the country avoid recession in the global downturn would slow more than previously expected.
“We haven’t seen anything that has caused us to materially revise our profile for it,” he said.
Stevens said the Australian economy was growing at close to trend, with relatively low unemployment and low inflation, but acknowledged there were “risks and uncertainties” in the future.
“Overall, growth is forecast still to be close to trend, albeit with a different composition from that seen in the past year or two, and inflation consistent with the target,” he said.