RBA governor Philip Lowe says board considering another cash rate cut
A further cut to Australia’s record low interest rate could be on the cards, with the Reserve Bank governor dropping a hint in a speech.
Economy
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The Reserve Bank of Australia has hinted at the possibility of another interest rate cut to support the country’s economic recovery from the coronavirus recession.
Speaking at the Citi Group annual investment conference on Thursday, RBA governor Philip Lowe said further monetary easing would support jobs growth and alleviate currency pressures.
Mr Lowe said risks associated with the country’s financial stability still needed to be examined before a decision was made; however, lower rates would have better traction now than at the beginning of the crisis.
“When the pandemic was at its worst and there were severe restrictions on activity, we judged that there was little to be gained from further monetary easing,” he said.
“As the economy opens up, though, it is reasonable to expect that further monetary easing would get more traction than was the case earlier.”
The RBA has said an increase in the cash rate will not occur for at least the next two to three years or until inflation is within the bank’s target range of 2 to 3 per cent.
The central bank will make its next monetary policy decision in November.
In March, the RBA slashed the official interest rate to 25 basis points as a result of the COVID-19 health crisis. It also implemented bond-buying measures and a term funding facility to ensure the country’s banking sector had access to ample liquidity.
Economists are forecasting an interest-rate cut of 15 basis points could occur at the next RBA monetary policy meeting, which falls on the same day as the Melbourne Cup.
In his speech, Mr Lowe touched on the high levels of debt revealed in the federal government’s October budget, assuring the largest deficit since the Second World War is “entirely manageable” and in the national interest.
“For a country that became used to low budget deficits and low levels of public debt, this is quite a change,” Mr Lowe said.
“But it is a change that is entirely manageable and affordable, and it is the right thing to do in the national interest. Debt across all levels of government in Australia, relative to the size of our economy, is much lower than in many other countries, and it is likely to remain so.”
The RBA governor also noted Australia’s two-speed economic recovery was being exacerbated by Victoria’s continued shutdown, which has hindered the second most populous state’s spending and job numbers.
For the month of August, retail spending in Victoria was down 11 per cent compared with the start of the year, while retail spending across the country increased by 13 per cent over the same period.
The number of jobs in Victoria are down 8 per cent compared with March, with Mr Lowe noting small businesses have been more impacted by the virus than larger corporations.
Originally published as RBA governor Philip Lowe says board considering another cash rate cut