China key, but work on other markets: RBA

Colin Brinsden, AAP Economics and Business Correspondent
·3-min read

Reserve Bank governor Philip Lowe believes Australia should be building other export markets, rather than diversifying away from China.

In a wide-ranging panel discussion at The Australian's Strategic Forum, Dr Lowe also hoped the change of US leadership will help the world tackle its many challenges better, while praising the NSW government for tackling tax reform.

On China, while there are disputes with Australia's number one trading partner, Dr Lowe said both countries have benefited tremendously from the relationship.

China has gained from Australia's natural resources and education exports, while Australia has benefited from importing a range of manufacturing goods.

"It is incredibly mutually advantageous for both countries to keep that strong trading relationship in place," the governor said.

"Over time there is tremendous opportunities to broaden out our markets. Australia is in a fantastic location on the globe, we are close to the fastest growing region in the world, we have good relationships with Indonesia and India."

On the election of US president-elect Joe Biden, Dr Lowe said the world faces many problems that need a global solution, such as the coronavirus pandemic, future pandemics and climate change.

"We going to be in a much better position to address them if the major countries in the world are working constructively together to address those challenges," he said.

"I would hope that the new US administration would be part of the effort to solve these very important global problems that need global action. To the extent the US is inside the tent we are going to be in a better position."

The governor also praised the NSW government for proposing a move from stamp duty to an annual land tax.

"That's the type of reform that people have been calling out for for years. It's been slow in coming. It's politically difficult," he said.

He also noted the federal government is working on industrial relations reform, but conceded there are no "really big signature moves".

"There are a whole series of individual initiatives which I think will add to make a difference," he said.

"There are a whole list of things to be done and we are making incremental progress - let's hope we can make a bit faster progress over time."

Despite cutting interest rates to record lows, Dr Lowe is not concerned that this will lead to a housing price bubble.

He said house prices in Sydney until recently were falling, and probably still are in Melbourne, the nation's two biggest markets.

"The lower interest rates do support housing prices, that's indisputable and in the current environment that's what we need," he said.

"We wouldn't be better off at the moment if housing prices were falling."

He said it is possible that lower interest rates cause housing prices to rise at an unsustainable rate.

"But I think it is unlikely," he said, adding population growth had fallen to its lowest level in over a century.