Swan Snubs Currency War, Says Strong Aussie a Worry
Australian Treasurer Wayne Swan dismissed talk of a 'currency war' in an interview with CNBC on Saturday, but admitted that a strong Australian dollar is a concern for an economy that is heavily reliant on mining exports.
"It is a substantial headwind for the Australian economy, some of our industrial sectors in particular, our exporters, our tourism sector and even our miners," Swan said on the sidelines of the Group of 20 Nations (G-20) meeting of financial ministers and central bankers in Moscow.
The Aussie dollar has strengthened about 6 percent against the U.S.dollar since July last year. It's currently trading at about A$1.0355 to the greenback.
Swan brushed aside recent concerns about a peak in investment in Australia's mining sector, which contributes 7 percent of the country's GDP and over half of the nation's export revenue, saying the "real issue" was stimulating growth outside of mining. He hinted that a further rate cut, which could potentially weaken the Australian dollar, could be on the cards.
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"One the benefits we have is that we've been able to substantially reduce interest rates because the government's fiscal policy has given that flexibility to our Reserve Bank," he said.
However, Swan refused to be drawn on the timings of a further rate cut.
"These decisions are taken independently by our Reserve Bank. But because we have had strong fiscal policy and fiscal consolidation, this has given the Reserve Bank room to move," he added.
The RBA has cut interest rates by 175 basis points since November 2011 to 3 percent in December last year, levels not seen since 2009. The cut was made in an attempt to spur non-mining parts of the economy after the resources boom, which has powered Australian growth for a decade, cooled on back of a demand slump from China.
No Currency War
Swan backed a declaration by G-20 at the weekend that there will be no "currency war," a concept that has generated buzz in the global markets in recent weeks after the sudden and rapid weakening of the Japanese yen, following the reflationary policies championed by the newly-elected Japanese Prime Minister Shinzo Abe to prop up the economy.
Swan, who is a strong advocator of market-based exchange rate mechanisms, said he was "comfortable" with Japan's stimulus projects. "No we don't [have a currency war]. All that talk is overblown," he added.
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"We've had a long commitment to market based exchange rates and that is what's been supported on the floor of the G-20… It is important for Australia and doubly important for the world economy. Artificial manipulation of exchange rates will result in whole host of consequences that won't assist global growth at all," he added.
On Budget, Election
Swan sought to allay criticism over the failure to deliver on his promise to return the Australian budget balance to a surplus by 2013.
The Australia Treasurer first made the pledge to return the country's budget deficit to surplus when he was elected in 2007, but abandoned the pledge in December last year, blaming a strong currency, lower export earnings and company profits.
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"We saw a huge crash in commodity prices in the second half of 2012 and that weighed heavily on our revenue, and part and parcel of that were doubts about Chinese growth," he said.
Swan also dismissed talk that Prime Minister Julia Gillard's decision to trigger the longest election campaign in political history would have a detrimental impact on Australia's economy.
Last month, Gillard announced that national elections would take place in September, which gives a campaigning period of eight months compared to the usual six weeks.
"No, what we have is an election date, the campaign begins in August and the election was always going to be around that time. A lot of people would want to view everything that is done through that prism. But the government gets on with the business of government, which is putting in place responsible policies which support growth and jobs," he said.