RBA governor Philip Lowe lays foundations for October rate cut
In his speech yesterday to the Armidale Chamber of Business, RBA governor Philip Lowe opened the door for a rate cut next week.
"Over recent times, our economy has been going through a soft patch," Lowe opened his segment on the Australian economy.
He says they [the RBA] were not expecting a slowdown of GDP, which grew by just 1.4 per cent over the year to June, the slowest year-ended growth for a number of years.
"We did not expect this slowdown, so it has come as a bit of a surprise," Lowe suggested.
On interest rates, Lowe said the decisions to ease monetary policy in June and July were taken to help make more assured progress towards full employment and the inflation target.
"Further monetary easing may well be required," Lowe advised.
"Regardless of the short-term outlook for monetary policy, the point about the solution to low global rates is relevant here in Australia too.
"We will all be better off if businesses have the confidence to expand, invest, innovate and hire people.
"Given Australia's strong fundamentals, this is not out of our reach, but it does require constant effort.
He said that Australia are "at a gentle turning point and expect growth to pick up," however he added that the strength and durability of the pick-up remains to be seen.
Unemployment and underemployment have been they key topics in the RBA's thinking as to when to cut rates, and how far.
Lowe said there has been an accumulation of evidence over recent times that the economy can sustain lower rates of unemployment and underemployment than previously thought likely.
He added that the flexibility of labour supply also means that strong rates of employment growth can be sustained without inflation becoming a problem.
"These are both positive developments," he said.
Lowe suggested inflation will pick up, with it having been below to two to three per cent medium-term target for some time, however said it will "remain below the midpoint of the target range for some time to come."