RBA governor Philip Lowe to retirees: think of the greater good

RBA governor Philip Lowe says he understands the pain of retirees living off saving.

Dr Lowe said he hoped the banks would pass through the rate cut in full to mortgage holders. Picture: iStock

Reserve Bank governor Philip Lowe has said he understands the pain of individuals who depend on a newly-slashed cash rate for their income, but argued the central bank’s actions are “about the collective good.”

Speaking on Tuesday after the RBA announced it would slash the interest rate by 15 basis points to a record low of 0.1 per cent, The Australian’s Patrick Commins asked Dr Lowe what he had to say about those who live on bank interest income, and whether they were “collateral damage” of monetary policy.

“What I’d say to them is we understand their pain,” Dr Lowe said in response.

“We discussed this extensively at our board meeting today, and I know personally because many of the people write to me explaining the difficult circumstances that they are in and I acknowledge that the effect of monetary easing falls very uneasily across the community,” Dr Lowe said.

“The people who are relying on interest income as their main source of income bear a heavy share of the burden here and I understand why they’d be unhappy, and I think it’s regrettable that we find ourselves in this situation.”

Dr Lowe said that the situation of low interest rates was a global economic phenomenon that can only be reversed through economic growth.

“As I said before, the underlying driver of this is that there a lot of people around the world who want to save, and not many people want to invest.

“So if you save a lot but people don’t want to use your money to invest, the harsh and unfortunate reality here is that you’re going to get a low return on your savings.

“So the solution here is to get businesses to invest and to have other individuals want to use their income to spend rather than to save.

“If we can do that then, as I said before, I am confident we can get back to a world where savers can get decent rates of return.”

Dr Lowe said earlier in his speech that he was “optimistic” that the cash rate could be increased within the next three to five years.

He also told savers to keep in mind that the interest rate cut would benefit the broader economy.

“I think the other thing I would say to savers is that there’s an issue about the collective good here,” he said.

“I think lower interest rates will help support spending and that will help create jobs so the broader community will benefit from today’s decisions, but the effects are felt unevenly across the community.”

Governor of the Reserve Bank of Australia (RBA) Philip Lowe. Picture: AAP

Dr Lowe said he would like to see higher interest rates “just as much as the savers”.

Rate City research director Sally Tindall on Tuesday said the RBA’s decision could see the average saving rate on a bank account fall from 0.52 per cent to below 0.4 per cent.

“The outlook for savers has just turned from gloomy to bleak, with another RBA cut today and no prospect of a rate rise for at least the next three years,” she said.

“Already a handful of banks are offering no interest on some savings accounts. While the big banks will desperately want to avoid cutting their base rates down to 0 per cent, it can’t be ruled out.”

Earlier, Dr Lowe said he hoped the banks would pass through the rate cut in full to mortgage holders.

“I would expect and hope that these interest rate reductions get passed through to all borrowers,” he said.