Reserve Bank ‘to review’ interest rate judgment at further meetings

Reserve Bank chief Philip Lowe has left the door open to a further interest-rate cut, saying coming CPI data is important.

New RBA governor Philip Lowe at a parliamentary committee last month. Pic: AFP

Reserve Bank of Australia governor Philip Lowe has left the door open to a further interest rate cut, saying coming inflation data remain important for policymakers, while expressing concern over falling inflation expectations.

Dr Lowe also waded into the housing market debate once more, saying a “complex picture” had emerged over recent months.

The recently appointed RBA governor said third-quarter inflation data, due for publication next week, is still important to the interest-rate setting board of the central bank, adding that the bank will “continue to review” its judgment at future meetings.

The RBA’s board next meets on November 1.

The Reserve Bank of Australia has cut interest rates twice this year in response to weak inflation readings. But more recently it has appeared comfortable with the official interest rate at a record low of 1.5 per cent.

The comments by Dr Lowe suggest the RBA might be prepared to lower interest rates further should inflation in the third quarter again surprise on the low side.

Dr Lowe said falling inflation expectations would make the job of returning inflation to within the RBA’s 2 per cent — 3 per cent target harder. Currently inflation sits below the target band and is expected to remain there for a few years.

“In terms of inflation, we have been looking carefully at the various measures of inflation expectations, which have clearly declined, although not to unprecedented levels,” he said in a speech at an economics conference.

“The experience elsewhere suggests that we do need to guard against inflation expectations falling too far, for if this were to occur it would be more difficult to achieve the inflation target,” he added.

Still, Dr Lowe saw plenty of positives about the economy, saying GDP growth and the job market have been stronger than expected this year. Risks surrounding household debt have also retreated somewhat, he added.

A clear picture has yet to emerge on housing, however, with the RBA noting on occasions this year the heat might have gone out of the market, only to see prices bounce sharply once again.

“The recent data on the housing market are mixed,” Dr Lowe said.

“Prices seem to be increasing quite briskly again in some areas, although are falling in others. Growth in rents is very low and there is a big increase in housing supply still to come.

“To add to the picture, credit growth is still exceeding income growth, although by a smaller margin than last year.”

He added that it was “noteworthy” much of the credit growth was tied to financing new housing construction rather than consumption.

“It is a complex picture,” Dr Lowe concluded.

With Dow Jones Newswires