RBA governor says employment at historic high and economy strong

Reserve Bank Governor Philip Lowe delivers an endorsement of the government’s economic plan, declaring the fundamentals “are strong’’.

RBA Governor Philip Lowe (left) meets with Treasurer Josh Frydenberg in Melbourne today. Picture: David Geraghty

Reserve Bank Governor Philip Lowe has delivered a strong endorsement of the federal government’s economic plan, declaring the economy is growing and the fundamentals “are strong’’.

After meeting with Josh Frydenberg in Melbourne this afternoon Dr Lowe said he agreed “100 per cent’’ with the Treasurer’s argument that the Australian economy remained sound and lauded the fact that “more Australians have jobs today than ever before in Australian history’’.

The comments come after the RBA last week told the government it “should not rely on monetary policy alone’’, sparking calls from Labor to ramp up its infrastructure program.

Dr Lowe’s comments will bolster Mr Frydenberg and Scott Morrison’s arguments that the government’s economic settings — which include tax cuts, infrastructure spending and cutting regulation — are correct.

“The outlook is being supported by our lower interest rates, by your tax cuts, by higher levels of investment in infrastructure, by a pick-up in the resources sector and the stabilisation of the housing market,’’ Dr Lowe said after the meeting.

“But I don’t think we should forget that more Australians have jobs today than ever before in Australian history. That’s a remarkable achievement. And I also agreed with you that a priority is to make sure that Australia remains a great place for businesses to expand, innovate, invest and employ people and I’m sure we can do that,’’ Dr Lowe said.

The Treasurer emerged from the meeting asking the states to fast-track infrastructure spending to stimulate the economy. He said while spending was softer “than we would like’’ the tax package would boost the economy.

Mr Frydenberg also called on the big banks to pass on historic interest rates cuts in full a week after they withheld some of the last official reduction.

The Treasurer and the RBA governor’s meeting in Melbourne today covered infrastructure spending and the more than one million Australians who have now lodged their tax returns and are due to get their rebates as soon as tomorrow.

Mr Frydenberg said Australians needed to feel the full benefits of the RBA’s record low interest rates, days after The Australian revealed this week that the big banks have withheld the equivalent of eight separate rate cuts since the global financial crisis.

“Most of those interest rates cut have been passed on by the big four banks ... some banks have been better than others,” Mr Frydenberg told Sky News.

“We are again united in calling on the banks to pass on in full the benefits of reduced funding costs to them to the benefit of Australians.

“They should pass on those interest rate cuts ... Australians expect they get the benefit of these interest rate cuts.”

 

Back-to-back cuts in the cash rate to a record low of 1 per cent have pushed the difference between the RBA’s cash rate and the standard variable mortgage interest rate to a 25-year high of 3.94 percentage points.

While the Reserve Bank lowered the cash rate by 50 basis points at its past two meetings, the Commonwealth Bank and NAB reduced their standard variable mortgage rates by 0.44 percentage points, ANZ dropped its rate by 0.43 percentage points and Westpac held back the most, lowering its rate by 0.4 percentage points.

 

The major banks said it was ­becoming more difficult to move in line with the RBA given the ­current regulatory environment, capital requirements and funding costs.

Average mortgage interest rates are nearly four percentage points higher than the Reserve Bank’s cash rate because of the big banks’ reluctance to pass on interest rate cuts in the past decade.

Mr Frydenberg also said after his meeting with the RBA that Dr Lowe “understood” the constraints on the federal government to bring forward infrastructure projects to stimulate the economy.

The Treasurer has been under pressure from Labor to increase infrastructure spending based on the RBA’s governor’s recent comments, which Scott Morrison said last week have been “over-interpreted.”

“He (Dr Lowe) understands that the pipeline is very strong and that are some capacity constraints on delivering some of these projects because the demand for skills and materials and the like,” Mr Frydenberg said.