Reserve should lie low and keep its powder dry

Q. So what is the overall state of the domestic economy?

A. Well, as the governor has said, the glass is more than half full. Resources Minister Martin Ferguson recently said the resources boom was over, but what he meant was that the commodity price boom was past its peak, a proposition with which we agree. We are well into the investment phase and, despite the reductions in plans of the big companies, there is still a lot of investment under way.

A senior mining man told me recently that when projects already announced are cancelled, that will be the time to worry. Gina Reinhart's massive development may end up postponed or requiring help from BHP Billiton or Rio Tinto.

When investment comes off the boil, export volumes will ramp up, phase three of what will be a three-part mining boom in a 10-speed economy. The average speed will be about 3 per cent a year, about the best we can do with current fiscal, industrial relations and welfare policies.

This is our best guess, of course. If Europe implodes and China's slowdown is noticeably worse, all bets will be off.

Q. That 10-speed economy includes several sectors hurting badly: manufacturing, tourism and education, to name three. The dollar is too high for these sectors to flourish. I must ask again why it is not possible and desirable to engineer a lower Australian dollar?

A. As I have said, Mr Board Member, it is not possible to have all 10 sectors booming at once. The lagging sectors are in effect providing resources for the booming sectors, including mining but also services generally and the public service in particular.

If the federal and state governments played their part and produced a genuine underlying fiscal surplus, which is what the economy needs at present, it would be possible for us to cut interest rates and produce a sustainable lower dollar.

Trying to engineer a lower dollar by swapping overseas currencies for dollars would be useless and might just produce an even greater inflow of overseas currencies that we would be forced to turn into dollars. Our own version of Operation Twist.

Q. What about all those people Roy Morgan says would like more work and cannot get, and those who say they cannot get a job or live on existing welfare payments?

A. Sadly, these matters require integrated industrial relations, welfare and taxation reform, and there is virtually nothing we can do to help by reducing interest rates at this time.

Q. Inflation is low and seems destined to remain low, certainly that is what the forecasts say. That's our main job, so why not give a bit of help to the unemployed and other battlers with a lower interest rate?