Costello hopes RBA wrong on rate timing

Colin Brinsden, AAP Economics and Business Correspondent
(Australian Associated Press)

 

Peter Costello hopes the Australian economy won’t still need a record low cash rate in 2024, as repeatedly flagged by the Reserve Bank.

Australia’s longest-serving treasurer understands RBA governor Philip Lowe is trying to reassure everybody the central bank will provide support as long as it is needed.

“I like to hope that the cash rate won’t be at 0.1 per cent in 2024 because that would tell me the economy is strong and doesn’t need the kind of life support that 0.1 per cent represents,” the former treasurer told the Australian Financial Review Business Summit in Sydney.

“These rates are emergency rates, they are for emergencies.”

Mr Costello, who is chair of the Nine Network and the Future Fund, said it is critical for both central banks and government to be thinking of an exit strategy from their support measures to be able to face the next crisis.

Dr Lowe will address the summit on Wednesday.

Mr Costello’s comments came as both business and consumer confidence jumped amid signs of a robust recovery from last year’s recession, despite some tapering of government support.

The influential National Australia Bank business survey showed confidence rose further in February to its highest level since 2010, while conditions also returned to multi-year highs after dipping in the previous month.

“This is a very positive survey result,” NAB chief economist Alan Oster said releasing the report on Tuesday.

“Importantly, we’re starting to see an uptrend in business hiring and investment activity.”

The rise in confidence was broad based, with all states and industries recording an increase, except retail.

“This says the economic recovery has very strong momentum, and even though government support is tapering, businesses are increasingly confident the economy will continue to improve,” Mr Oster said.

Commonwealth Bank economists estimate job losses of up to 110,000 when the JobKeeper wage subsidy expires in March, with jobs in travel-sensitive sectors like transport, accommodation and arts and recreation most at risk.

“However, given the strength of the leading indicators of the labour market we expect that the overall impacts on the labour market will be short lived and any negative impact on spending will be minimal,” they said.

Consumers too have a renewed spring in their step following last week’s national accounts, which Prime Minister Scott Morrison described as “remarkable”.

The weekly ANZ-Roy Morgan consumer confidence index – a pointer to future household spending – jumped 1.5 per cent, with four out of its five sub-indices showing strong gains.

ANZ head of Australian economics David Plank said the rise was likely in response the December quarter national accounts, which showed the economy had racked up two quarters of growth above three per cent for the first time.

It also coincided with other figures last week showing job advertising soared 13.4 per cent in February, indicating further strong employment gains are possible in coming months.

The National Skills Commission’s preliminary vacancy report for February also released on Tuesday showed a seven per cent increase in job ads, the 10th consecutive monthly rise to be 24.8 per cent higher over the year.

Mr Morrison told the AFR conference the national accounts highlight the economy’s “remarkable comeback”, growing by 3.1 per cent in the December quarter, led by the private sector and outperforming G7 countries and the OECD average.

“Household consumption was strong, backed by confident Australian consumers, whose incomes have been supported through the crisis, also increasing retail spending,” he said.

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