Australian sovereign fund lashes central banks over inflation
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[August 31, 2022]
By Byron Kaye
SYDNEY (Reuters) -Central banks had been
"caught napping" with respect to inflation and would have to raise
interest rates more aggressively as a result, extending equity market
turmoil, the head of Australia's sovereign fund said on Wednesday.
The chair of the Future Fund, which covers pension liabilities for
Australian public servants, also criticised the Reserve Bank of
Australia (RBA) for giving "wrong" inflation guidance.
The rebuke from Peter Costello, a former federal treasurer, builds on
criticism in Australia about the RBA's handling of economic shocks
stemming from the COVID-19 pandemic. The new centre-left Labor
government has said it will hold a review into the RBA.
"It's our belief that monetary authorities both in the U.S. and
Australia were caught napping with the surge in inflation, and now the
rate rises are going to have to be much more significant than if they
had begun to act earlier," Costello told reporters on a call after the
fund posted an annual loss on its investments.
"As rates rise, over the course of this year and into next year, we
would expect that equity markets will be soft," he added.
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Australia "came late to the tightening of (monetary) policy", he said.
That meant that the RBA would "continue to move faster (and) this means
there will be higher unemployment as we go forward".
The RBA's earlier guidance that rate increases would not be needed until
2024 was "wrong", he said, and the money the RBA spent buying bonds to
intervene on the bond market was "wasted".
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Australian dollars are seen in an
illustration photo February 8, 2018. REUTERS/Daniel Munoz/File Photo
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"It wasn't a very good chapter for the Reserve Bank. We hold governments to
account. We've got to hold central banks to account too," he said.
An RBA spokesperson declined to comment but referred to recent statements by RBA
Governor Philip Lowe, saying the 2024 commentary was conditional on economic
conditions remaining the same, which they did not.
The roughly A$200 billion Future Fund said it made a loss of 1.2% in the year to
end-June, better than a decline of more than 10% in global equities and bonds.
But it noted that it returned 22.2% the year before, meaning its performance
against a 10-year target of returning an average of 6.6% a year was relatively
unaffected.
Since a year ago, the fund said it upped its exposure to "alternatives" like
infrastructure to 17.8% of total funds under management, from 13.2%. It cut its
equity exposure to developed markets to 15% from 18.2% and cut its equity
exposure to emerging markets to 5.4% from 9.1%.
($1 = 1.4586 Australian dollars)
(Reporting by Byron Kaye; Editing by Stephen Coates)
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