RBA spends $3b to prop up Aussie dollar

The Reserve Bank spent a whopping $3.15 billion propping up the Australian dollar
when it plunged towards 60 US cents in another sign of its concern about the state
of the economy.
Data released on Thursday shows the action taken in October was the central bank's
largest intervention in the currency market since records were started in 1995, and
much bigger than when the Australian dollar collapsed below 50 US cents in 2001.
The scale of the central bank's action emerged as both sides of politics appeared
for once to agree on something - that the budget does not need to go into deficit to
cope with the global financial crisis.
RBA governor Glenn Stevens appeared to give the green light to the budget slipping
into deficit in a speech on Wednesday, saying he backed "worthwhile" public
investment "even if that involved some prudent borrowing".
Market economists agree that such action would be prudent if the economy took a turn
for the worse.
But federal Treasurer Wayne Swan disagrees and is sticking with his projection of
modest surpluses and modest economic growth.
Earlier this month, in the mid-year budget review, the government cut its economic
growth forecast to 2.0 per cent for 2008-09, and slashed the budget surplus to a
mere $5.4 billion from an original forecast of $21.7 billion made in May.
"We simply do not agree or think it is necessary in our current circumstances to
borrow to invest," Mr Swan told reporters in Canberra.
"The principle we support and support strongly is that we believe in surpluses over
the cycle, we have been consistent in that."
Opposition Leader Malcolm Turnbull backed such sentiments.
"We have forecast economic growth next year of two per cent," he told reporters in
Perth.
"We have no federal debt, we have a strong economy, we should not need to go in to
deficit."
In any case, he was not prepared to give Prime Minister Kevin Rudd a pass to engage
in "lazy policy".
"We cannot ... start spending and spending, running up huge debts doing what Labor
governments traditionally do," he said.
"We can't afford to do that."
The government will hand out $8.4 billion in one-off cash payments to pensioners and
low-income families next month as part of its $10.4 billion economic stimulus
package.
This week, it also announced $300 million in funding for local councils.
Opposition treasury spokeswoman Julie Bishop said the government needs to be more
accountable for its spending and can't keep using the global financial crisis as an
excuse for keeping people in the dark.
"We see very little analysis, in fact no analysis, no modelling, no research, no
evidence beyond their spending packages," she told Sky News.
"It seems to be back of the envelope stuff ... now we deserve better than that."
But Mr Swan hit back at Ms Bishop's apparent lack of support for the stimulus package.
"How cruel and insensitive could Julie Bishop be to refuse to support such a
sensible measure which will give additional money to families just before
Christmas," he said.