Dec 16, 2013

Abbott confused on A$ — and that gift to the RBA

Tony Abbott's bizarre linkage of the government's $9 billion handout to the Reserve Bank to the Australian dollar raises questions about a deal between the government the independent RBA, Bernard Keane and Glenn Dyer write.

Tony Abbott

Did Prime Minister Tony Abbott’s confusion over economics and the strength of the Australian dollar lead him to mislead Parliament last week, and suggest the Reserve Bank had done a deal with the government to lower the value of the dollar?

The RBA’s continuing efforts to jawbone the dollar down appear to be bearing fruit after Governor Glenn Stevens’ latest effort on Friday when he expressed a wish in a newspaper interview for a dollar around 85 US cents. But less than 24 hours earlier, Abbott said something that appeared to suggest there was a trade-off between the RBA’s efforts to lower the currency and the still surprising decision by the government to inject $8.8 billion into the RBA to boost its main reserve:

Free Trial

Proudly annoying those in power since 2000.

Sign up for a FREE 21-day trial to keep reading and get the best of Crikey straight to your inbox

By starting a free trial, you agree to accept Crikey’s terms and conditions


Leave a comment

16 thoughts on “Abbott confused on A$ — and that gift to the RBA

  1. Jimmy

    What a shock – the bloke who promised lower taxes, bigger spending, lower debt and bigger surpluses doesn’t understand economics!

    Just 3 months in and the “This is the ALP’s fault” arguemtn on the deficit is already being called out by all but the News Ltd press – Hokey isn’t going to get any sympathy when he announces another deficit in May.

  2. leon knight

    Knowledge is irrelevant – Tony is happy with his first 100 days, and is quite satisfied with his own intelligence – what more could an honest taxpayer ask for?

  3. Scott

    The only reason why the the government is injecting the cash is for prop up the RBA’s reserves (which are sitting at around 2% of Total Assets). As the Australian dollar has strengthened, the value of the foreign currency assets of the RBA has decreased, and hence reduced the total assets of the RBS. This has led to the risk of the bank going into negative equity…never a great thing for a central bank, even one as highly regarded as the RBA.

    I did a regression on this not so long ago and found that a 1% increase in the value of the Australian dollar against the US dollar resulted in a 0.87% decrease in the total Assets of the RBA (holding interest rates constant, statistically significant at the 95% confidence interval). Adjusted R2 was only 17% to be fair, but it isn’t a fallacy to suggest that the injection of funds into the RBA was partially due the strengthening dollar.

    However, there was also an element of the RBA trying to get more cash out of a fresh incoming government as well. There was no need to get the reserves to 15% TA when 10% was probably plenty (and a good compromise)

  4. Jimmy

    Scott – did the RBA ask for the money, no! Did the RBA say they were surprised to get the money, yes.
    Is this just a cynical exercise to make the deifcit bigger this year then pull back bigger dividends to try a show some improvement in future years, yes!!!

  5. klewso

    He’s Abbonomical with the truth too.

  6. Scott

    The RBA also said it was a “prudent” thing for the Government to do, so let’s not get lost in the symantics of “Did they ask for it or not”. The reserve is down to 1.85% of TA as of last week so maybe the Government is playing it smart.
    As for the politics of the move, well a lot of speculation regarding Hockey being able to rip higher dividends out in the future when the Aussie decreases in value, but they could do that anyway, without the upfront injection of capital. So I don’t think that is really the motive. I think Hockey reconns the QE program has still some more time to run and hence it will be a while before the Aussie drops substantially. He could be right. Picking currency movements is pretty tough and I wouldn’t be commenting on crikey if I could do it consistantly. (I would be watching the sun set on my boat moored off Bora Bora)

  7. Hamis Hill

    That “Inevitable Abbott Recession” seems to be doing its job of getting the dollar down.
    Onya ‘Tone!

  8. DiddyWrote

    At first I used to think that the litany of lies, falsehoods and patently wrong things that emerged from Abbott’s mouth was because he was an ignorant, dumb, bigoted and stupid muppet, however I now feel that I am wrong.
    It appears that no matter how contradictory to reality any statement that Abbott utters, it is just glossed over by a stunningly passive media.
    I take it all back, Abbott and his familiar Credlin are evidently arch media manipulators able to bamboozle the best of Australian journalism.
    A media that appears unable to realise that the LNP are feeding them bullshit when they even bother talking to it.

  9. klewso

    “Abbott – the prime minister we had to have”

  10. Jimmy

    Scott – It isn’t just about making future deficits lower by getting biggere dividends – it is about making this one bigger so future deficits look like things are getting better and making the ALP look worse.

    It will be interesting to see what Mark Stevens has to say at the senate hearings.

    Also considering we have a “budget emergency” don’t you find it strange that the govt can blow the deficits out by a further $8.8b just to give it to the RBA?

Share this article with a friend

Just fill out the fields below and we'll send your friend a link to this article along with a message from you.

Your details

Your friend's details