Too many businesses are keener to hand back money to shareholders through measures such as dividends and buybacks than they are to grow, an exasperated Reserve Bank governor Glenn Stevens has told a parliamentary hearing.
A clear theme of the past fortnight of company reporting has been generous flows of capital to shareholders from blue-chip Australian companies including Telstra and Rio Tinto. On Wednesday Wesfarmers joined the rush announcing a $1 per share dividend.
“If reports are to be believed, many businesses remain intent on sustaining a flow of dividends and returning capital to shareholders,” Mr Stevens said.
“Any plans for growth that might be in the top drawer remain hostage to uncertainty about the future pace of demand.
“You can’t make people be confident, I certainly can’t,” he said suggesting that further cuts in interest rates might be of little use.
“I’ve allowed the horse to come to the water with cheap funding. I can’t make it drink.”
Mr Stevens said he would be prepared to consider even lower interest rates “if that really would be helpful”. But he doubted it would be.
Since the Reserve Bank last cut its cash rate to 2.5 per cent in August 2013 easing of margins by banks had cut the cost of borrowing a further 0.15 percentage points.
“You’ve seen more than half of monetary policy easing, just there,” he said. “At the end of the day monetary policy can’t be the engine for growth. We can help smooth out fluctuations but we can’t drive growth.”
Asked why Australian businesses seemed reluctant to take risks he nominated culture.
“From my perspective I think society is becoming too risk adverse. The way we think about risk has got distorted. We are not paying enough attention to return,” he said.
“We face moments like these in every business cycle. Sometimes it fires nicely, sometimes it takes longer. I can only try and articulate these things and hope that enough people see the message and bring themselves to do what they can to create confidence and take a few risks.”
Mr Stevens dismissed suggestions that the Reserve Bank board had even considered raising rates in the year since August, saying “despite speculation in various quarters we haven’t thought about raising rates any time lately”.
The Australian dollar rose then fell during the testimony, finishing little changed at US93.11c.
The dollar remained too high and would come down “at some point”. At least once during the last few years the Reserve Bank “thought seriously” about intervening in foreign exchange markets to bring the dollar down, but it then fell of its own accord.
Intervention remained an option. If the bank did intervene it would do it without warning.
“It’s on the table as an option if it seems appropriate,'' Mr Stevens told the members of Parliament. ''I am not going to give advance warning to investors as to when it might be done, if you don’t mind. I think that would be a tactical mistake on my part.''
The economy performed more strongly than the bank had expected at the start of the year and more weakly since. The Reserve is forecasting economic growth of 2.5 per cent this year followed by growth of 2.5 to 3.5 per cent in 2015.
Unemployment was unlikely to fall much below its present 6.25 per cent for some time, a figure that was weaker than he wanted but “kind of OK”.
Low wage growth of 2.5 per cent was probably helping “save jobs” and shoring up consumption, but it was unlikely that consumer demand would drive the economy as it had during earlier decades. It wasn’t yet clear what the drivers would be.
