RBA Governor Philip Lowe issues warning after rates drop to historic low

The Reserve Bank has taken the extraordinary step of calling on the government to intervene as the Australian economy nosedives.

The Reserve Bank has made a rare cry for help from the Morrison Government to lift up a diving economy.

On the same day the four big banks announced plans to pass on a central bank interest rate cut, RBA Governor Philip Lowe called for more infrastructure spending and job creation policies.

Mr Lowe gave a speech in Darwin on Tuesday night where he said easing monetary policy wasn’t the only way to push the economy forward.

“One option is fiscal support, including through spending on infrastructure,” he said.

“Another option is structural policies that support firms expanding, investing, innovating and employing people. A strong, dynamic, competitive business sector generates jobs.”

While June and July’s consecutive rate cuts will “help promote our collective welfare”, Mr Lowe said the RAB recognised the benefits were “not evenly distributed across the community and that there are some downsides to monetary easing”.

“Partly for these reasons, over recent times I have been drawing attention to the fact that, as a nation, there are options other than monetary easing for putting us on a better path,” he said.

“Monetary policy does have a significant role to play and our decisions are helping support the Australian economy. But, we should not rely on monetary policy alone. We will achieve better outcomes for society as a whole if the various arms of public policy are all pointing in the same direction.”

He warned that amid uncertainty over US-China trade relations, the risks to the global economy “remain tilted to the downside”.

“We will be closely monitoring how things evolve over coming months,” he said.

“Given the circumstances, the board is prepared to adjust interest rates again if needed to get us closer to full employment and achieve the inflation target.”

Labor leader Anthony Albanese said the rate cut was a “cry for help” from the RBA.

Labor wants the federal government’s planned 2022 change to the 32.5 per cent tax threshold — from $90,000 a year to $120,000 — brought forward, while also putting off further changes planned for 2024.

“If that’s good policy in 2022, let me tell you, today’s decision by the Reserve Bank screams that that’s good policy in 2019,” Mr Albanese told Sky News.

RBA Governor Philip Lowe in Darwin. Picture: Amos Aikman/The Australian

Taxpayers will get a boost in their bank balance this week as the government’s tax cut package cleared the lower house last night.

Low and middle-income earners will receive a tax offset of up to $1080 when they file their tax returns. Finance Minister Mathias Cormann said this morning Australians voted against “Labor’s higher taxing agenda”.

Mr Cormann said the RBA’s move showed the tax cuts were urgently needed.

“The RBA makes these decisions independently, they assess all of the relevant economic information, and they’ve made a judgment that a further rate cut was justified — obviously that’s their job,” he said.

“Employment growth remains strong and the RBA noted that as well, but we are facing global economic headwinds, we have been dealing with some downside risks in the domestic economy, from floods to drought, you name it.

“That is why it’s so important that the parliament swiftly passes our plan for lower income taxes. We are kicking in the same direction as the RBA to ensure we continue to build a stronger economy and can continue to create more jobs, that is what this is all about.”

Meanwhile, Treasurer Josh Frydenberg denied suggestions the RBA move is a reflection on his handling of the economy.

“That’s actually not what they’ve been saying,” he told 2GB this morning. “The Australian economy shouldn’t be talked down by the Labor Party.”

Mr Frydenberg said the RBA “actually believes we can get unemployment lower than where it is today at 5.2 per cent, and they can help do by reducing interest rates without causing inflationary concerns”.

“So, combined with the infrastructure spending, our apprenticeships programs, what we’re doing on deregulations, it would all help keep the economy growing,” he said.

It came after the Treasurer urged the big banks to fall into line and pass on the rate cuts in full to their borrowers.

“The government expects all banks to pass on the benefits of sustained reductions in funding costs,” he said in a statement on Tuesday.

ANZ was widely criticised last month when it passed on just 0.18 percentage points of the Reserve Bank of Australia’s 0.25 percentage-point cut, so this time the bank is passing on the full amount.

CommBank will pass on the RBA’s latest cut in full for its interest-only standard variable rate home loans, but will only cut principal and interest variable rate home loans by 0.19 percentage points.

Meanwhile, NAB announced it would make a 0.18 percentage-point cut to its home loan interest rates. NAB and CommBank passed on June’s RBA rate cut in full.

Westpac will reduce most variable home loan rates, including those for owner-occupier mortgages, by 0.20 percentage points, although interest-only investors will get a reduction of 0.30 percentage points.

The bank made a similar move in June, with interest-only investors getting a reduction of 0.35 percentage points.

The RBA’s two consecutive cuts, including another 0.25 percentage point drop on Tuesday, has lowered the key cash rate to a record low of 1 per cent.

— with AAP