‘Jobs the concern, not ratings’, says Reserve Bank of Australia boss Phillip Lowe

RBA governor Philip Lowe said the prospect of Victoria losing its AAA credit rating ‘doesn’t concern me’.

‘Over recent months, the number of people with a job has risen significantly’: Reserve Bank of Australia governor Phillip Lowe. Picture: AAP

RBA governor Philip Lowe said the prospect of Victoria losing its AAA credit rating “doesn’t concern me”, and maintaining the top debt grade from global agencies had “more political symbolism than economic importance”.

Speaking at a parliamentary committee hearing on Wednesday, Dr Lowe endorsed the decision by states and territories to incur massive debt and deficits to cushion the economic blow from the COVID-19 recession.

He said states collectively had recorded budget deficits equivalent to 5 per cent of their total output, and that this was “exactly the right thing to do” — even if it ­resulted in a downgrade from one of the global ratings agencies.

“AAA credit ratings have more political symbolism than economic importance,” Dr Lowe said. “What is of more concern is that people don’t have jobs.”

He said record state debt levels were manageable at record low borrowing costs. “What I want to see is strong public finances in Australia, and I think we have that and we are going to continue to have that,” Dr Lowe said.

While he reiterated that record state debt levels were manageable at record low borrowing costs, he said it would “not be prudent to bake in high levels of expenditure indefinitely”.

Following the Queensland budget on Tuesday, S&P Global Ratings confirmed its “stable outlook” the state’s AA-plus rating, but said there was a 50 per cent chance it would downgrade Victoria’s rating. And last month, it warned that NSW’s “escalating debt is eroding headroom” on the state’s AAA credit score.

Dr Lowe repeated his belief that debt was likely to remain cheap for years to come.

After cutting rates to 0.1 per cent and launching a $100bn quantitative easing scheme in early November, the RBA governor said: “We’ve got to get back to unemployment at four point something to get the type of wage pressures that will deliver inflation outcomes consistent with (the bank’s average inflation target of) 2.5 per cent” — a precondition for higher rates.

At 7 per cent now, Dr Lowe said the key jobless measure would still be at 6 per cent in two years time, and that pushing the unemployment rate below 5 per cent “still seems a long way away”.

He also said that closed borders would lead to the slowest rate of population growth since 1916.