The Liaison Program is the way in which the Reserve Bank's been able to extend its presence
in the Australian community.
And so there was a recognition that it was important for the Bank to engage with the
business community and to feed messages from the business community into that one very
important decision on interest rates.
So in 2001 we established state offices in Perth, in Adelaide, in Melbourne, and in Queensland
and our Head Office is here in Sydney, and the idea was that by being on the ground we
would be able to introduce more concepts and more information about what's happening in
the economy and that just helps make better informed decisions on economic policy.
There are a couple of big advantages by having the Liaison Program; firstly the information
that we get from the business contacts is highly relevant because decisions that they
make today will lead to economic outcomes tomorrow, so you can't get much better than
that and secondly it's very timely so it often gives us insights into how the official statistics
are going to be playing out.
And a good example of this is our retail liaison, so we meet with key firms across the whole
of Australia or we speak to them every month and by doing that we're getting an on the
ground assessment of not only how they're going but what their future plans are.
And this information comes out about two to three weeks before the official statistics
are released, so when it comes down to policy you know that's a huge advantage.
The Liaison Program is intended to be as far reaching as possible, so when we select our
liaison participants for the program we are trying to ensure that we have a good cross
section of contacts who are representative of conditions in their sector or industries,
so we don’t necessarily only want to speak to the big firms in the mining sector, but
it's important for us to understand what's happening in the tourism sector, education,
manufacturing, so we ensure that we have that broad spread.
And because we're speaking to large firms it's still important for us to understand
what's happening with small businesses.
There are too many small businesses for us to meet, so what we do we organise round table
discussions with a group of small businesses on a fairly regular basis across the states
and also in Head Office Sydney.
Well we're trying to seek firm specific information, and we're wanting not only to understand whether
firms are going to be increasing or decreasing investment or wages or the like, we also want
an understanding of the reasons why they're doing this because this adds to the richness
of the information.
And I think a good example of this was during the Global Financial Crisis in 2008, so there
was a lot of pessimism around about future prospects for Australia, and rightly so at
the time, but when we spoke to our contacts we started to get an understanding that in
actual fact the first thing they were going to do wasn't to reduce the number of jobs
in their workforces, they wanted to retain flexibility in the workplace and so they reduced
hours worked, and they encouraged people to take accumulated leave and the reason they
did this was because when growth resumed at whatever point that might have been they didn't
want to be in a position where then they had to look for new employees and go through the
same problems that they actually did during the boom period.
So we wouldn't have had those great insights if it wasn't for the Liaison Program.
The information from the Liaison Program gets used in a variety of ways, it gets incorporated
into information that's used in Head Office for the forecasts, but because it's so timely
and because it's giving us these very insightful views on how things might be playing out into
the future, we have learnt about so many different things in the economy and a good example of
this is with the mining investment boom.
So we had the privilege of being able to speak to mining firms and mining firms gave us information
about their investment plans into the future and when we joined the dots together, we realised
that this mining investment boom was going to be much larger in magnitude than what we'd
envisaged, and also for that reason for what anyone else was thinking at the time.
So this gave the Reserve Bank some time to step back and think about the implications
of this mining investment boom on the rest of the economy and what policy responses should
or shouldn't be taken as a result of that.
So we wouldn't have been able to get those insights if it wasn't for the mining Liaison
Program.
Another great example was with the natural disasters, the Queensland floods and cyclones
in 2010 and 2011, and so when it came to bear then we phoned our contacts, we got on the
phone and we spoke to them and said well look, how's this playing out.
And it wasn't just a matter of understanding what damage was done, but it was also a matter
of understanding what responses were going to be put into place, and how long it was
going to take.
And what we learnt from this process was that coal production was going to be affected in
quite a large way and the reason for that was that the coal mines were flooded, so the
mines, they had to extract the water from the mines before they could resume production
again, and that took a lot longer than it was initially thought.
So that affected output growth in the economy and then by activating our agricultural contacts
we realised there was lost production and that was going to also affect output growth,
but the big impact on lost agricultural production was actually through prices and its impact
on the Consumer Price Index which is very important for the Bank, you know, because
it's an indicator of inflation and we're an inflation targeting central bank.