RBA governor Philip Lowe says low cash rate was working
The RBA governor Philip Lowe said he was prepared to cut the cash rate further if it was needed to improve economic conditions in Australia.
And he maintains the recent cuts are working.
"Low interest rates are supporting jobs and overall income growth.
"At the same time, though, we recognise that monetary policy is not working in exactly the same way that it used to."
Lowe effectively repudiated former treasurers Paul Keating and Peter Costello's view that monetary policy has "run its race."
The former treasurers have both suggested that monetary policy was not useful any more after the three 0.25 percentage point interest rate cut.
“We are confident that these reductions are helping the Australian economy and supporting the gentle turning point in economic growth,” Dr Lowe said when he delivered the Sir Leslie Melville lecture in Canberra yesterday.
He noted high levels of debt meant that "people are more careful with their spending and are less inclined to take on yet more debt.
"This is especially so when income growth has disappointed, as it has over recent times.
"In a number of countries, both government and households feel constrained by their previous decisions to borrow and are seeking to put their balance sheets on a sounder footing.
"One way they can do this is by spending less and saving more," he noted
“We also recognise that low interest rates hurt the finances of many people, particularly those relying on interest income. So there is a balancing act here,” he said.
“The board is prepared to ease monetary policy further if needed.
"Having said that, it is extraordinarily unlikely that we will see negative interest rates in Australia.
“It is likely though that we will require an extended period of low interest rates to reach full employment and for inflation to be consistent with the target.”
Lowe said it is the duty of the Reserve Bank Board to ensure that its policies are directed to the greatest advantage of the people of Australia so as to best contribute to:
- the stability of the currency of Australia;
- the maintenance of full employment in Australia; and
- the economic prosperity and welfare of the people of Australia.