RBA To Publish Liaison Summary From November SOMP
- Published on
- 15 Sep 2022, 03:04 PM
By Sophia Rodrigues
(Sydney, September 15, 2022)—The Reserve Bank of Australia will begin publishing summary of liaison messages in its quarterly Statement on Monetary Policy starting November 2022.
The move is another step towards more transparency and comes after calls from stakeholders to disclose this information because it is increasingly becoming important for monetary policy.
Last week at the Q&A session following his Anika Foundation speech Governor Philip Lowe flagged the RBA’s plan to include the liaison information in the SOMP, and it has now been confirmed in a bulletin article, “The Reserve Bank’s Liaison Program Turns 21” published on Thursday.
The RBA’s liaison program came under sharp focus in May when it cited evidence from business liaison and various business surveys on labor costs as reason for making the conclusion there was stronger upward pressure on labor costs and it is likely to continue.
“The message from our liaison..is very clear at the moment, wages growth in Australia is finally picking up. This is something that we welcome,” Lowe said in May.
The “evidence” was a crucial piece in its decision to raise the cash rate by 25bps in May after stating in April that “over coming months, important additional evidence will be available to the board on both inflation and the evolution of labour costs” and the board will assess this and other incoming information to set its policy.
“We wanted to wait for the evidence, and as soon as we've seen the evidence we've moved,” Lowe said.
Since then, there have been calls to publish liaison information so private sector economists also have an opportunity to analyse information that goes into the RBA’s decision-making.
MORE ON LIAISON
The RBA’s liaison program has a pool of around 900 currently active contacts, of which around three-quarters are firms. They are broadly representative of the industry structure of the economy, but with greater proportion of firms in the wholesale and the retail trade sector.
The RBA conducts interviews on a continuous basis throughout the year, and over the past 21 years has conducted around 20,000 interviews.
The core questions each participant is asked at each liaison interview are: how has demand for your goods or services, your investment, headcount, non-labour costs, wages and prices changed over the past year, and how are they expected to change over the coming year?
The liaison information has improved the RBA's understanding of a wide range of topics over the past decade, but the bulletin article cited four case studies when liaison was especially helpful.
During the mining investment boom information from mining contacts gave the RBA an early indication that the amount of mining investment was going to be bigger than most forecasters expected and that, as prices fell, investment would decline at a faster pace than anticipated.
In 2010s, it was discussions with retailers in the liaison program that suggested an intensification of competition in the retail sector and firms' efforts to reduce costs along their supply chain were likely to have contributed to low retail inflation.
In early 2010s, discussions with liaison contacts provided the RBA with some possible explanations for the decline in wages growth and indicated that wages growth was likely to remain subdued. The COVID-19 pandemic resulted in another marked slowdown in wages growth in 2020 and 2021 and the numerical wages information from liaison was valuable in helping forecast this decline and subsequent rebound.
Over recent quarters, liaison with the construction, energy and retail sectors has provided the RBA valuation information on consumer price inflation.