Shop around for a better interest rate deal, RBA governor says

The Reserve Bank governor has played down the burst of “small” interest rate rises.

Reserve Bank of Australia Governor Philip Lowe says the next rates move will be up, but this is some way off. Hollie Adams/The Australian

The Reserve Bank governor has played down the burst of “small” interest rate increases by major lenders, urging households to shop around for a better deal.

In a speech in Perth on Tuesday night that remained upbeat about the economy’s prospects, Philip Lowe said official interest rates were still more likely to rise than fall in the future despite further falls in house prices and signs business investment was flagging.

“I encourage anyone with a mortgage to shop around: there are some very good offerings out there,” Dr Lowe said, a week after Westpac, Suncorp, and Bendigo and Adelaide Bank increased their mortgage rates by up to 0.4 of a percentage point, claiming higher borrowing costs overseas.

“We can all play a role in promoting strong competition in our financial sector by shopping around and taking advantage of the good deals,” he said.

Speaking after the monthly meeting of the Reserve Bank Board, which as expected kept the official cash rate on hold at 1.5 per cent for the 25th month in a row, the governor dismissed concerns the royal commission into financial services was choking credit.

“While credit standards have been tightened, mortgage credit remains readily available,” he said. “You can expect the next movements in interest rates to be up not down.”

“This would be a sign that overall economic conditions are returning to normal and would take place against the backdrop of stronger growth in household income. But any move still seems some way off, given the gradual nature of the progress expected on unemployment and inflation,” Dr Lowe said.

He also maintained an optimistic outlook for wage and jobs growth.

Paul Dale, chief economist at Capital Economics, said the governor “glossed over” weak retail sales growth in July and dis­appointing business investment figures. “Despite the clear signs from the latest data that the economy has lost a bit of momentum, the RBA still expects GDP to rise,’’ Mr Dale said.

The chance of an interest rate increase before June next year, as high as 50 per cent earlier this year according to financial markets, was priced at 4 per cent on Tuesday.

The Australian Bureau of Statistics said the current account deficit increased by $1.8 billion to $13.5bn between the March and June quarters, while net foreign debt rose from $1.02 trillion to $1.04 trillion.

The governor’s statement was little changed from the previous month, flagging a gradual pick up in inflation and wages to more than 2 per cent, which is the bottom of the RBA’s target range for inflation. “Many business people I speak to recognise that a pick-up in overall wages growth would be a positive development from a macro perspective, although not from the perspective of their individual business,” Dr Lowe said.

The national accounts for the June quarter, released on Wednesday, are expected to show the economy grew at 2.8 per cent last financial year, down from 3.1 per cent over the year to March.

Dr Lowe noted how population growth in Western Australia had plunged from 3.5 per cent in the resource boom to 0.75 per cent, the slowest of any state.

“The cash rate has been at 1.5 per cent for more than two years now and the board expects it to remain there for a while yet,” the governor said.

He said RBA staff were still busy despite the longest stretch of stable policy on record. “We have other responsibilities that don’t attract the same spotlight as our monthly interest rate decisions.”

He said the new $50 bill would be released on October 18.