Next cash rate move could be down: Lowe

Marnie Banger
(Australian Associated Press)

 

Reserve Bank Governor Philip Lowe says Australia’s cash rate might be cut further if income and spending growth are weaker-than-expected in the coming years.

But it is equally possible that the next move in the interest rate will be up, if more Australians are finding jobs and their wages rise, Mr Lowe has said during a National Press Club address in Sydney.

“Looking forward, there are scenarios where the next move in the cash rate is up and other scenarios where it is down,” Mr Lowe said on Wednesday.

“Over the past year, the next-move-is-up scenarios were more likely than the next-move-is-down scenarios.

“Today, the probabilities appear to be more evenly balanced.”

His comments come after the central bank kept the cash rate at its record low of 1.5 per cent on Monday, as widely anticipated, meaning it has not shifted in 30 months.

The rate, which reflects what the central bank charges commercial banks on overnight loans and influences all other interest rates, was last cut in August 2016 and hasn’t been hiked since November 2010.

Despite flagging the interest rate could next move in either direction, Mr Lowe said the RBA doesn’t expect a change anytime soon.

“It does not see a strong case for a near-term change in the cash rate,” he said.

The governor said both the global and Australian economy are due to grow reasonably well in the coming two years, despite some looming global risks.

But the strength of Australia’s housing market and how much people are splashing their cash will be the greatest sources of uncertainty in the local economy in the coming years.

Mr Lowe is not certain what impact the correction will have on household consumption.

But the RBA does believe things are looking manageable, on the back of big hikes in prices in recent years.

“What we are seeing looks to be manageable adjustment in the housing markets of Sydney and Melbourne,” he said.

“Most households do not change their consumption in response to short-term changes in their wealth.”

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