Interview with Reuters

Speech

Notes

Interview with Reuters Andrew Hauser Deputy Governor Sydney – 12 November 2025 Stella Qiu I just want to, get started by asking you about the, you know, the Westpac consumer sentiment data
yesterday. And then the NAB survey. So they both came in pretty strong. And I think the consumer
sentiment, that turned optimistic for the very first time in nearly four years, what’s your read
on those? Andrew Hauser So look on the Westpac survey, there’s also an ANZ survey, weekly survey of consumer confidence.
If you plot the two together, I don’t know if you’ve done that, that’s an interesting
picture, it’s worth doing. You’ll see that they have diverged for some time. The ANZ survey
is materially weaker – it has improved but it’s materially weaker in level terms than the
Westpac survey. So as you say Westpac has picked up above zero for the first time, I think your first
thought when you look at that comparison is that these numbers might be a little volatile. And indeed Westpac themselves, if you see their statement I think uses words like surprised or, some
intriguing, you know, I can’t remember the exact words, but the some intriguing results here,
which I think suggests that they themselves are uncertain how much weight to put on them. If you look
at, some of the measures within this survey that we put most weight on, things like people’s
personal financial position, which seem to have better correlations with consumption they aren’t
quite as strong. And some very similar questions in the Westpac survey and in the ANZ survey, things like, you know, is
this is a good time to make a major purchase, have different answers. So I think your first thought
when you look at that chart is that maybe it’s a little volatile and we should aim off it a
little bit. It’s an interesting question you could ask well what if it’s true? What if, in fact,
consumers have become substantially more positive about things, the determinants of consumption, real
incomes and wealth, are stronger now than they have been for some time. They’ve obviously been,
you know, pretty depressed, particularly on the real income side. So, you know, we’ve been
treating the weakness of consumer confidence as a bit of a puzzle. At some point, I think everyone had been expecting that it would improve somewhat. So maybe
directionally it is telling us something. But I think our starting point on that survey will be
probably had a bit of an erratic reading, and we certainly want to spend a bit longer thinking about
whether it persisted and whether the ANZ measure started picking up before we gave it too much
weight. Stella Qiu On the NAB survey, we saw conditions pick up a little bit and also the high capacity utilisation
rate. Andrew Hauser The pick up of business conditions wasn’t spectacular, right. It was positive. But, I mean, many
of those measures were sort of at or around period averages rather than being spectacularly strong,
spectacularly weak. As you say, the capacity utilisation thing is important. You will see the speech I did a couple of days ago where I tried to show, and in fact, I used the NAB
survey data, the old data not the most current one. But it’s consistent with that picture, that
we are and had begun this recovery at the end of last year with a pretty high, an unusually,
historically high level of capacity utilisation in the economy. Our models suggest that, but the
models are subject to error. But the NAB survey and this is another measure consistent with that, also show the same picture, which
is that, you know, as I say, as GDP growth has been recovering, the level of capacity utilisation in
the economy is at a historic high. That’s a good thing, from an economic management perspective,
because you don’t want spare resources sitting around. That’s people’s jobs, it’s
livelihoods, it’s factories, it’s businesses operating below capacity. Margins of spare
capacity are not in and of themselves good things, but it does create some challenges and an
interesting context for monetary policy. So I think, the NAB survey, unlike the Westpac survey, was I
think confirming a picture that we’ve known about for some time rather than giving us dramatic
new news. Stella Qiu I just, want to get a little bit deeper into how do you interpret the behaviours of Australian
consumers. Because based on the monthly household consumption data that we had, it seems like
Q3 was pretty soft and that’s going to add very little to GDP growth in the quarter. But at
the same time, you know, we had housing prices adding to wealth effects, and that consumer sentiment
was pretty strong as well. Like how do you how do you make sense of that? Andrew Hauser Well, look, I mean, like all data that they, they’re moving in different directions at different
times. Australian consumers have been under pressure. Obviously, like globally, it’s true here
as well real incomes through the period of heightened inflation were under pressure, a lot of
pressure. Households spent time rebuilding their balance sheets, reducing their leverage. Even now,
when you look at the data of household savings in their offset accounts and their other means, it is
high, and they are clearly taking advantage of higher interest rates, but also the uncertainty that
they perceived about the outlook for the economy to rebuild their positions. And that has obviously had, a dragging effect on consumption growth. Consumption has picked up, but
it’s picked up in a pretty modest and gradual way. For some time, not recently, but for some
time, we and other forecasters were expecting consumption to pick up a bit more strongly and we
didn’t see it. More recently, it has picked up closer to levels that our models have expected. But even so, I was just looking at our forecasts here. Our outlook for consumption growth over the
forecast period is in the low twos, which by long-term historic standards is relatively modest. And
that’s part of this broader story of the recovery to around 2 per cent growth, which
we are roughly at already in terms of GDP, is probably as good as it gets for this cycle. We’ve
downgraded our assumption of supply capacity in the economy to around 2 per cent a year. A
broadly speaking, GDP growth is already at that level. So when we think about consumption growth sort
of surging forwards, at very much higher rates, that’s not our central case. You say the latest
number was soft. The household consumption number wasn’t actually that surprising to our teams
here. You know, you have some ups, you have some downs. Stella Qiu The other question I have is, how come you are so confident on the labour market? Is the labour
market this slow in other countries as well? Is there a number in your head for the unemployment rate
that would make you go, oh, that’s a bit concerning? Andrew Hauser Well, firstly, I reject your premise that we’re confident about the labour market. It’s not
wise for central bankers to be confident, certainly not overconfident about anything. So we’ve
never, I think, made statements about the labour market that we’re confident in the outlook or
we’re confident about where we are today. I was interested that you said that employment growth
was slower than other countries. There’s a chart in the speech that I gave, which I do quite
like to point people towards which shows the level of employment to population in Australia.
We’ve all recovered after Covid. But Australia has stayed high and level. New Zealand, Canada,
the UK, the US have all come off those peaks. So I don’t see that as in any way a weak
employment picture compared to other countries. It’s a very strong picture relative to other
countries. Stella Qiu I meant slowed in other countries. Andrew Hauser Oh, I’m sorry, I misunderstood you, it has slowed in other countries. Employment growth here has
slowed too, but it remains positive and we had expected there to be some slowing because of the
changing composition of jobs. So you’ve had, a large proportion of employment growth in the last
couple of years has taken place in the non-market sector, which has lower measure productivity rates,
market sector somewhat higher. So as you shift, as we need to, from public to private demand and
we’re seeing that, you would expect a compositional effect on employment growth, which would
somewhat slow. But it remains positive and our projection for employment growth over the forecast
period of 1 to 1.5 per cent is still pretty decent by long run standards. And
it’s against that backdrop of a high level of employment growth. You ask if is there a level of
unemployment that will cause us to worry? No level of unemployment is good news for anyone. Not
having a job is one of the big challenges to anyone’s life. Certainly, there are no levels of
unemployment that make us happy. So, our forecast for unemployment is for it to roughly remain where
it is now. Maybe that’s what you mean by, confident. Obviously, there are big margins of error around that central case. But if you look at, actually, we
were just reviewing it this morning. We did a survey of external forecasters, what they think for
employment, they all have actually surprisingly similar profiles. There’s a range of uncertainty
around them, but no one is saying we think unemployment is going to 10 per cent or going
back to three, two and a half or whatever. We’re all within a fairly narrow range. Could that
forecast be wrong? Absolutely. And, you know, as we often say, the one thing you know for sure about
a point forecast is that it is 100 per cent certain to be wrong, you just don’t know
in which direction. This picture of a recovery in the economy in growth terms, this picture of
inflation stabilising at or around the midpoint would also, if right, be a picture of the labour
market stabilising close to equilibrium levels. So that that’s our big picture story of the
economy. Whether it turns out to be right or not, only time will tell. Stella Qiu And then the other question is, the RBA did say that you’re close to achieving both of the
policy mandates in September. I think Sarah said that. Do you still believe that? And are we still on
this narrow path? Andrew Hauser Well, I think Michele actually may have even officially retired the narrow path analogy back in the
earlier part of the year. That was a story particularly about the challenges of bringing inflation
down. And if you remember, and I think it was a phrase that maybe the previous governor first used
that was really about saying, gosh, we’ve got to get inflation down a long way, from sevens and
eights to two and a half. The history suggests that doing that does drive quite a substantial
slowdown in employment growth. A significant achievement of that disinflation has actually been that
we didn’t see anything like that substantial slowdown in labour market that people maybe
expected. That’s what he meant by narrow path, I think, is how do we get inflation down without
driving unemployment up to a substantial, to an excessive degree? I think we’ve probably moved
on from that. I don’t know the precise quote that you’re referring to from Sarah Hunter. I
would be surprised if she declared success. It’s not normally in the DNA of central bankers to
declare success. What I suspect she was pointing out is, relative to expectations let’s say a
year ago, I talked about this in the speech as well, a lot of people thought that when other central
banks were cutting rates in the second half of last year, that we were behind the curve. Perhaps you
even wrote it yourself, I don’t know. And there was certainly a few in the market that said,
look, these other guys are cutting rates. Why are you not doing so? The answer to that is we didn’t raise interest rates as far, so we didn’t feel the
imperative to cut them as far either because our rates were lower than elsewhere. We also needed to
see stronger evidence that inflation was going to come down consistently and persistently,
sustainably to the midpoint of the target. And we needed more evidence for that. We also expected
growth to pick up, not because of the impact of easier monetary policy, but because of the Stage
3 tax cuts and some of these other drivers that you saw from GDP. So none of those made us think
through the back half of ‘24 that we needed to join a rush to cutting rates prematurely. We
didn’t have rates as high. We saw GDP recovering and we still worried a little bit about
inflation. Relative to that picture a year ago, maybe this was the point that Sarah was making, a
number of the goals that we set ourselves have come about. GDP has recovered, inflation has returned
to the target band, albeit it’s now the upper end of it, and employment growth has stayed
relatively strong. So those are, by macroeconomic standards quite encouraging outcomes. And I’m
sure she would have said that. On the other hand, monetary policy always looks forward. So there isn’t really ever a moment,
sadly, to sort of declare success and say mission accomplished. That’s a very dangerous thing to
do. You’re always thinking about what’s the next challenge, what’s the next outlook?
And obviously with the latest inflation data and to some extent with the pickup in unemployment as
well, we’re already thinking, what does this mean for policy? Stella Qiu The other question I have is what gives you confidence disinflation is still happening in the
economy, especially given the economy is still pretty strong and the labour market is strong? How can
you be sure disinflation is still underway? Andrew Hauser Well, obviously inflation has picked up a little bit in the latest numbers. So, you know, that
obviously is a very live question. If I slightly reinterpret your question as do we think the stance
of policy is still mildly restrictive? We do. That is our central estimate. And the reason for that
is that, as I say, growth is still picking up. When you look at household credit, it has picked up in
growth terms, but if you express it as a share of income, it’s actually fallen substantially
over the last couple of years and is not historically strong. As I said a moment ago, you still see
consumers building up savings, choosing to take historically relatively large share of their income,
and investing and saving it rather than spending it. And you know, unless you believe the latest
Westpac numbers, people still say they’re uncertain about the future, they’re worried about
their job prospects, they’re not feeling in a place where they want to make large scale
purchases. So for all those reasons, I think our best guess is that policy is still marginally restrictive. But
as we said in our latest statement, that judgment is an increasingly important part of the policy
challenge. And there are people out there, and I rehearsed a set of views in the speech that you
could take who are arguing, well, certainly financial conditions in a broader sense suggest our
interest rates have eased. And there are people who argue they’re already accommodative. I think
to believe that view, in other words, that our stance is not currently restrictive, you have to take
a number of edge case assumptions. So you have to assume that the neutral interest rate is a number
with a four in front of it, for example. You could believe that if for example, you take the US long
rate, you say we’re a small open economy, we’re largely a price taker in international
capital markets. So maybe the neutral rate is around a four number. It which case it was slightly
below that. If you put particular weight on the equity risk premium, the compressed credit spreads,
all the stuff you guys talk about a lot in terms of broader global capital markets. If you look at
the pickup in business growth, those are all factors that you could use to cite, well maybe financial
conditions broadly defined are on the easy side of neutral now. But as I say, those ignore the fact
that Australia is still largely in fact a largely bank-based economy and that household borrowing
relative to their incomes is still by historical standards relatively low. But those are more active debates now than they were a few months ago. The committee is debating them
and it’s really important, right? I mean, if it turns out that in fact the judgment is that we
are no longer mildly restrictive, that has important implications for our future policy stance. Stella Qiu The next one we have is about the makeup of the Monetary Policy Board. Right now the majority of the
people on the board are external members. So do you think that’s unusual among global central
banks? And is there a risk that the RBA will be outvoted by the external members and that you have to
defend the decision that it doesn’t agree with? Andrew Hauser It’s a somewhat unusual setup, yes. But what I would say is, and I would not recommend anyone
spending ages doing this sort of dry comparison of the composition of policy boards across the world.
The nature of policy board structures depends heavily on the economy and the society within which
they’re vested. So obviously I come from the UK where the Monetary Policy Committee consists of
mostly economists. They are independent voices. They’ve just made some changes to the way they
communicate. So each member gets their own named paragraph as to how they’re seeing the outlook
for the economy. That is a sort of edge case solution in terms of individual accountability. Other
boards, you know, I could mention the ECB, I could mention the Fed, I could mention the BOJ, I could
mention RBNZ, have different structures. And my view of that is that they reflect what society wants
to see for the legitimacy of the way that policy is set. And one of my reflections, and I obviously
been on this board now for about a year and a half, is that the board in Australia functions very
well, I think, on behalf of Australians. So you have a wide range of backgrounds and skills and knowledge. You have centuries of judgment and
ability and experience on boards or like in Ross on the Fair Work Commission, or like Harper in
academia. I could go on. They bring a very wide range of real-world views to bear on the policy. My
sense is that that’s important for the legitimacy of the monetary policy framework in Australia.
If you put policy exclusively in the hands of ivory towers economists, I think Australians might well
say, who are they to set policy? What do they know of my life? What do they know of the economy? You
can debate endlessly whether structures are good or bad and optimal or not. I think the structure is
well suited to success in Australia. You asked about what are the hypothetical voting structures? We
now publish voting records. I think that’s a good thing. They’re not named and they
won’t be named. And I think that’s also a good thing. And I’ll say why. Because
it’s really important that we protect the space, that we maximise the incentive for genuine
debate or about alternative views about where the economy is going. Throughout this conversation
we’ve talked about uncertainty to do with the outlook for unemployment, uncertainty about the
outlook for consumption, uncertainty about the stance of monetary policy. Reasonable people can and
should differ on those views. One of the things that the RBA sometimes been criticised for, I think unfairly, but it has been
criticised for, is this idea of groupthink – that everyone thinks the same way. There’s no
danger of that with this board. It’s a fantastically diverse group of ideas and thoughts and I
think Australia is best served by ensuring that that debate is as robust and vigorous around that
board table as possible. I can assure you that it is. And our job in terms of communication, I think,
is to get those different views about the economy, firstly into the policy decision and secondly, to
communicate them through the press conference and the minutes and all the rest of it. Attaching names
to those views, I would humbly suggest, is pretty irrelevant, actually. Who thought what is much less
important than what did they think? And if you had a structure that reduced the ability of those
arguments to be free, why did you argue that? Aren’t you beholden to this community or that
community? I think you’d have a less effective debate rather than the more effective debate. So
there are any number of different outcomes that you could imagine on the board over time. You said,
will the RBA be outvoted? The RBA is the Board. The Board is the statutory body responsible for
setting monetary policy. The RBA staff and the executive and Michele and myself are important members
of that board. But we are, when we are at that table debating a single goal, which is how to set
interest rates on behalf of the economy. We’re very strongly committed to increasing and broadening the diverse range of views that go
into that debate. I think on net, it’s not a good outcome for it to become personalised or for
people to think, I can’t make that argument around the board for fear that someone might say,
how dare you say that in the public domain. It’s a robust and vigorous debate and any number of
possible outcomes are possible around that table. But what you should care about, and I think what
people do care about, is whether the right decision is made, not who decided what. Stella Qiu Just a quick follow up question about what’s causing the delay in having the board members give
public speeches? Andrew Hauser Well, so the commitment in the Statement on the Conduct of Monetary Policy is that each external
member, obviously Michele and I do a lot of engagement, is a minimum of one public engagement a year.
The definition of engagement is broader than just speeches. It’s about the board getting out and
about explaining their views, the board’s views, but also listening and also engaging with the
community. And actually some of those things have already begun to take place. Sometimes they’re
big splashy events, sometimes they’re quiet but careful listening to business and public
organisations around the country about what they’re hearing. And those are very valuable. You
will see more of those things over time. And that’s a commitment that the whole board needs to
follow through on. But some of them will be high profile and some of them will be careful and
thoughtful listening to communities, things I think are really important. One of the things I
personally have spent a lot of my time on since being here is exploiting our fantastic liaison
operation that we run right around the country to go and listen to businesses, to social groups, to
local public organisations about local conditions. How are they seeing the economy face up? I
strongly recommend it. In the UK, it used to be the case of all monetary policy members had to get
around and about or they’d be held up in front of Parliament as not doing their job. As someone
who obviously still has things to learn about Australia, I have benefited strongly from that. I think
all policymakers can benefit from getting out and about. The important thing is, are we getting the message across about how we are setting policy? I counted
the number of communications tools in the Statement on the Conduct of Monetary Policy, I counted
14 separate ways. The press conference, the statement, the statement on monetary policy, the
bulletin, the parliamentary accountability, the minutes. It just goes on and on and on. People
aren’t going to spend 100 per cent of their time learning about every aspect of
monetary policy. Our goal is to get our message out clearly and succinctly. We have loads of tools
for doing that. The public engagement of board members will be one more. But there’s a lot of
communication and if you go back 10 or 20 years and you look at what central bankers used
to say, there was one famous comment from a central banker overseas that they were proud of the fact
they’d never spoken to a journalist on the record for the whole time of their time in office.
That may well have been right for the time, but it’s impossible now. If you think that the RBA
isn’t open and clear yet enough about its policy thinking, I mean, let us know. But I hope that
we are becoming increasingly so. I’m certainly very committed to that. Stella Qiu The other question I have is that you’ve been in Australia for almost two years. I think you
have rightly pointed out the false prophets, the media attention on the RBA. I’m just wondering,
do you have any views on Australia’s obsession about housing? Andrew Hauser Well, I come from the UK and I would say to you that any obsession with housing is not unique to
Australia. There’s a sort of, you know, tedious moment at any party or whatever where people
start comparing house prices in the UK. So it’s not unique to Australia. Stella Qiu Do you think that has anything to do with how productivity is quite slow here? Do you think the
obsession about housing helps explain why we have this productivity issue? Andrew Hauser I don’t think so. What would the link there be? Stella Qiu Because a lot of the economy is tied up in housing, mining. Andrew Hauser So look, the productivity challenge that Australia clearly has is not unique to Australia. Unless you
come from the US, you have a productivity problem. I come from the UK. Productivity growth there is
extremely weak. You look at Germany, you look at many parts of emerging Asia, quite worryingly as
well, given that they are engines of our future growth. We are all facing into this challenge of how
do we drive higher productivity growth in the economy? That’s first and foremost a
responsibility of the private sector, by the way. I think sometimes that gets underweighted a little
bit. It’s not a social responsibility. But clearly the way to profits, the way to growth, the
way to success as a company is investment and innovation. And those are things that all Australian
companies are focused on every day as to how to drive through. Is it a technology issue? Is it a
skills issue? Is it a question of providing infrastructure? These debates are being had in Australia
through the Productivity Roundtable and the Productivity Commission and everything. And I actually
think it’s a fantastically vibrant debate that’s going on about that, I think it’s a
good thing. We haven’t cracked it yet. But I think, is our gaze distracted from driving the next wave of growth from Australia by our
obsession with housing? I don’t think so. I don’t think that’s the primary issue. As
we all know, ensuring we do have a sufficiently strong housing stock to house the people that will
drive that future of productivity, obviously that, from a narrow economic perspective, is important.
So do we have enough houses? Do we have houses in the right places? Do they have the right provision
of utilities? Those are a key element of a successful growth model for Australia, just as they are
everywhere else. So housing is not irrelevant to that question, but the fact that people spend too
much time worrying about their houses and not enough time about innovation. No, I don’t think
so. Stella Qiu I want to shift gears and talk about overseas. Do you see an AI bubble? Andrew Hauser I don’t know, is my honest truth. AI is real. Do you use AI a lot as a journalist? Do you find
it useful? Stella Qiu I do. Andrew Hauser Does it help you do things that used to take you a long time really quickly? Stella Qiu It helps me write. Andrew Hauser So it’s alongside you, right, rather than on top of you. And that’s the model that
ultimately, I think it’s going to be. You get some deep questions about what effect will it have
on the world of work and people’s livelihood and so forth. I think AI is an enabler, or
let’s say that what it will become. It is a phenomenon, right? Globally and I mean, particularly
if you’re in the US and parts of Asia, it’s the number one topic of conversation. So I
would say like most growth spurts, innovation spurts, what you’re likely to see is real capital
creation and probably some false starts and probably some dead ends. And actually that’s what
innovation looks like, right? You try this way, you try that way. This thing is a game changer. This
thing was a waste of effort. But unless you throw a thousand flowers bloom or whatever phrase you
might want to do, unless you throw a whole load of effort, smarts and resources at that problem,
you’re not going to work out which of those technologies is the right way forward. Right now,
nobody knows that answer. And so anything with the word AI on it is getting a following wind. In due
course, some of those bets will turn out to be enormously profitable, for real. And some of them may
turn out to be busted flush. We don’t know which of those they’re going to be. But I think
the idea that AI is, and you’re not saying this, but anyone who were to say, well, AI is just a
complete bubble. It’s pure puff, the tulips, right? The classic tulip thing Nobody makes tulips
that are not actually a productive asset. It’s because everyone thought they were sort of thing.
I don’t think that’s the right analogy to suggest it, but for AI, there’s real capital
creation, real wealth creation in here. We just don’t know for absolutely sure which bit is
which at the moment. Stella Qiu Are you concerned of a market correction? Andrew Hauser So, I mean, obviously AI is only one part of the stock exchange, both here and in the US but it has
created a sense of confidence, particularly in the US around the economic and financial outlook that
has lifted all ships, or many ships, not all of them, but many. The equity risk premium is at
historic lows. That’s perhaps a bit surprising against the backdrop of such heightened
uncertainty. On a policy perspective and geopolitics you think, has equity risk really never been
lower? You could say the same about credit spreads. Is there really such a little credit risk in the
economy, globally? You probably think that some of those things look slightly stretched but is an
imminent market crash in my central case? No. We need to be alert to the fact that some of these
financial measures are at historic extremes and that might be telling us something about the outlook
or it might be telling us we are genuinely in the middle of a new paradigm. That’s the fun thing
about economics, about policymaking is we need to allow for the possibility of both. So, yeah,
I’m paid to worry. So am I worried about what a financial crash would look like if it happened?
Yes, and we have to be ready for that possibility. I come from the UK where for about 10 years
of my life it seemed like we were moving from one financial crisis to the next. So I know what a financial crisis looks like and the job of central banks is to be ready if those
things happen. And the same is true in Australia as it is everywhere. That’s why we do a lot of
work on financial stability. But it’s not my central case. Stella Qiu In terms of Australia’s super funds, it’s 4.2 trillion dollars, still growing,
increasingly invested overseas. It has its issues, some say governance is not too great either. What
are your biggest worries about the sector? Andrew Hauser Well, look, super funds are an enormous asset for Australia. It was a far-sighted decision in my
view, and this is outside my wheelhouse but I would say it anyway, by the Australian government,
Australian society to make this move some time ago. You can see the consequences of not providing for
retirement in some countries and it was a far-sighted decision to set that up. And obviously
it’s a phenomenon. It’s largely to say fourth largest pension system in the world today,
soon to become the second. What worries me about the super fund sector? Well, I mean it’s not
our job to regulate the super funds and there are many successes actually in terms of that it’s
sensible that they’re sending a large proportion of their resources overseas. They’re doing
that in order to deliver the services that they’re required to deliver to their members, which
is diversified risk. The fact is that the super fund sector is now substantially bigger than the set
of onshore listed assets. So you can’t just keep buying everything in Australia. I’ve
talked in a recent speech, maybe this is what you’re referring to, about some of the risk
management consequences of those overseas holdings. So particularly the importance of understanding
what liquidity shocks might look like if they happen. You asked a minute ago about what would happen
if markets corrected. You need scenario plans for that. You need to understand what you would do with
your portfolio. And there is, particularly in my view, a rather arcane issue but particularly
important issue around FX hedging of overseas holdings. You need to do that to some extent if you’re bringing all your assets back into Australian
dollars. One of the interesting, and you know, it’s almost like free goods being in Australia is
that you have a natural hedge in the way that the Aussie dollar works. It tends to be very well
correlated with overseas equity returns. That means that you don’t actually need to fully hedge
your position in overseas equities, let’s say US equities. In fact, the hedge ratio is only
around 20, 25 per cent for equities, it’s higher for fixed income. That’s
obviously reliant on those correlations remaining true. And I think as I spoke about a month or two
ago, there was an interesting debate earlier this year as to whether the role of the dollar, the
US dollar might change in the global financial system. That maybe super funds would change their
hedging behaviour quite radically. None of those worries have yet come to pass. The Aussie dollar
remains as effective a natural hedge today as it did a year ago. It’s stunning actually. Much
more so than other currencies have been quite substantial shifts in the yen and the euro and other
currencies in terms of their correlation characteristics. But not for the Aussie dollar. Maybe
that’s a testament to some of the strengths of the economy that we’ve talked about here.
But that possibility still is there. And do you have scenario plans in place for what happens if that
does? You need to change the shape of your FX hedge book. The best of the super funds definitely do have those plans, but it’s a big sector and they need
to make sure they all have those. The other thing I talked about in that speech was the fact that
there are some big structural things going on with the super funds regardless of the role of the
dollar. They’re getting bigger, as you say, they’re investing more and more overseas. They
will in due course move from being accumulating to decumulating as Australian members get older and
they start to retire and draw on those pensions. The shape of the portfolio will have to change over
that time. That’s all going to mean a larger and more complex FX hedge book for the super funds
over time. The super funds need to be thoughtful and are thoughtful about how that FX hedge book
would be managed. They’re going to need to diversify. Their counterparties can’t rely on
one bank. No one does rely on one bank, but you need to probably rely on several. They’ll need
to think about their collateralisation and risk mitigation strategies, which are unusual in some
cases relative to some other institutional investors, in terms of giving collateral, in terms of
paying margin, in terms of thinking in a more joined up and holistic way about how they manage those
books from a liquidity management perspective. As I say, and I don’t know how much you get around the super fund sector, the biggest super funds
are very thoughtful on this. They’re investing quite heavily in making their approaches more
sophisticated. And much of what I’m saying, frankly is just playing back to you what I’ve
learned from the best and the smartest in that industry about it. Global financial crashes of the
kind you describe and the kind I hope don’t happen, would obviously be challenging for the super
fund sector given the size of their investments. And as they get bigger and more sophisticated,
they’re also going to need to become more agile at navigating those shocks because they will
happen at some point. Stella Qiu Thank you so much, Andrew. Andrew Hauser Thank you.