Interest rates likely to stay low: RBA board member John Edwards

AUSTRALIA’s economy won’t grow strongly enough next year to warrant an interest rate rise, RBA board member John Edwards says.

(FILES) Photo taken on October 6, 2009 shows a man and a woman walking past the Reserve Bank building in Sydney. Australia resumed its sequence of interest rate rises on March 2 boosting them 25 basis points to 4.0 percent and warning they would continue higher to "average" levels. AFP PHOTO / FILES / Greg WOOD

AUSTRALIA’S economy will not grow strongly enough next year to prevent a further rise in unemployment, and this will require interest rates to remain low, ­according to John Edwards, a board member of the Reserve Bank.

Mr Edwards said the underlying momentum of the economy had not changed much this year.

“There is no doubt we are in a low-growth environment,” he said.

“It’s not enough to create jobs at a sufficiently fast rate to prevent a rise in unemployment.”

His comments came as figures released yesterday showed the unemployment rate rose to a fresh 12-year high, the latest in a string of indicators suggesting that economic growth ­remains weak.

The nation’s jobless rate rose to 6.3 per cent last month, from 6.2 per cent in October, in line with economists’ expectations.

Even so, there was a strong surge in part-time work, with numbers jumping by 40,800.

The number of people in full-time work increased by 1800, but an overall rise in the number of people looking for work drove the unemployment rate higher.

Mr Edwards said economic policymakers at the central bank and the government would need to continue to act cautiously next year.

“Were that kind of environment to continue you would hope that the federal government would not want to narrow the deficit too quickly, and you’d expect monetary conditions to remain accommodative,” Mr Edwards said.

Mr Edwards said there was room to cut interest rates if conditions warranted such a move, noting that Australia was unusual among developed economies in terms of having such high interest rates.

Were interest rates to be cut, the impact on the economy would be quick, he said. With most Australian mortgages on variable interest rates, the transfer to the economy could be fast, Mr Edwards said.

Despite evidence of a sharp slowdown in the economy in the third quarter on the back of falling investment and tumbling commodity prices, Mr Edwards said there was no reason to overreact.

“I don’t think there is ­evidence of a serious deterioration under way, but no doubt growth is slow,” Mr Edwards added.

“I think we are ending the year without very much change in the underlying momentum of the economy.”

The Australian dollar was likely to fall further next year, helping the economy, and it was getting closer to properly valued levels, “but it is not there yet”.

Recent data have pointed to falling consumer and business confidence in a country that is struggling to cope with a slowdown in mining investment that has powered the economy for much of the past decade.

Figures last week showed that the economy slowed to a crawl in the third quarter, as sharp commodity-price falls also dented export earnings.

The Westpac-Melbourne Institute Unemployment Expectations Index — which measures people’s expectations of failing to find a job or losing an existing one — surged by 4.5 per cent in ­December, following a rise of 2.7 per cent in November.

The economy is being slugged by falling bulk ore prices, too.

Iron ore, the country’s biggest export, has halved in value since January, at the same time as the dollar is overvalued, according to the central bank.

Amid the weak economic data, expectations are growing that interest rates may continue falling next year from the current record-low level of 2.5 per cent.

The Wall Street Journal