The elephant of scandal in the monetary policy room

The RBA's record is starting to look a little shaky after further Securency revelations. It could be a very challenging 2014 for Glenn Stevens.

The years 2007-2008 were not the Reserve Bank of Australia’s finest.

It raised interest rates four times after the start of the worst credit crisis in 70 years and ignored advice in late 2007 from the company secretary of a subsidiary that the company was paying bribes.

Five years later the bank is paying the price of decisions made then. On interest rates it has been playing catch-up ever since and on corporate governance it must surely be facing a formal inquiry into what went on at Note Printing Australia Pty Ltd and Securency International.

Yesterday’s decision to leave rates on hold was undoubtedly correct in the circumstances, but the board will be hoping that the US Republican Party does not go further than a brief Government shutdown and force a default on US Treasury debt by not raising the debt ceiling.

That would potentially cause an even greater financial storm than the one in 2008, into which Australia sailed with the cash rate spinnaker flying at 7.25 per cent.

Global credit markets began shutting down in June 2007, but after that the RBA raised rates in August, November, February and March by a total of 1 per cent.

When the inevitable culmination of the crisis happened in September 2008, the RBA was forced to scramble rates down by a massive 4.25 per cent between September 2008 and April 2009. It then had to scramble them back up again in late 2009-2010 after China came back to life, commodity markets boomed again and the property market started to get out of control.

Exactly a year later it was cutting again, not so frantically this time, but to a record low. Once again the property markets are threatening to get out of control, this time with the additional propellant of self-managed super funds. It’s clearly not yet a bubble, but the RBA is clearly worried.

And if the US defaults on its debt because the GOP-smacking Rabid Republicans decide to take the debt ceiling hostage over Obamacare as well as the budget, then it will have to cut even more, which will fuel an even greater property boom in Australia. Investors would be doubly keen to get out of low-yielding term deposits and shaky shares.

So 2014 could be a most challenging year for the RBA and its governor Glenn Stevens; he might end up wishing he hadn’t asked for, and got, a three-year extension on his term in April this year.

It is hard to see how the Abbott Government can avoid commissioning some sort of inquiry into what went on at Note Printing Australia and Securency, what the RBA management knew and when they knew it, and why the Australian Securities and Investments Commission didn’t investigate when the matters were referred to it.

This week’s on-camera interviews on the ABC’s Four Corners programme with the former company secretary of NPA, Brian Hood, and a former senior sales manager at Securency, James Shelton have dramatically clarified the issues. These two men have become devastating whistle-blowers against the RBA management and their accusations must be answered in detail, especially the one that Glenn Stevens misled, no doubt inadvertently, a Parliamentary Committee about what the RBA knew of the scandal in 2007-08.

The whole thing is doubly disturbing because it concerns the institution responsible for Australia’s monetary policy, and therefore, in effect, with managing the economy.

It was the elephant in yesterday’s monetary policy statement.

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