RBA boss says low rates are here to stay

(Australian Associated Press)

 

The head of the Reserve Bank has indicated interest rates will not move for some time, though when they do they will eventually rise by around two per cent.

Speaking at a dinner in Brisbane after the RBA’s monthly meeting, at which the cash rate was left unchanged at a record low of 1.5 per cent, governor Philip Lowe said the central bank was aiming to stimulate the economy without adding to already high levels of household debt.

Low interest rates are supporting jobs growth and helping inflation return to average levels, and the outlook for investment is looking brighter, he said.

“These are positive developments,” Dr Lowe said.

“Even so, it will be some time before we are at what could be considered full employment in Australia and before underlying inflation is at the mid-point of the medium term target range.

“This means that stimulatory monetary policy continues to be appropriate.”

The cash rate has been steady since August 2016, and Dr Lowe said any cuts since then to speed up jobs growth would have encouraged highly indebted households to borrow even more.

“More borrowing might have helped today, but it could come at a future cost,” he said.

“So the board has been prepared to be patient and has not sought to overly engineer or fine-tune things.”

Dr Lowe also addressed recent speculation of impending rate hikes, which was triggered by discussion at the RBA board’s July meeting of the neutral cash rate – an estimate of the level at which the cash rate neither expands or contracts the economy.

The RBA governor said the board’s discussion of a neutral cash rate of 3.5 per cent should carry no particular message about where the cash rate is headed in the short term, but said it would likely head in that direction in coming years.

“As we make further progress on both unemployment and inflation, we could expect the cash rate to move towards this neutral rate over time,” he said.

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