RBA says it could cut interest rate if income and spending get weaker | Australia news


The Reserve Bank governor said Australia’s cash rate might be cut further if income and spending growth were weaker than expected in the coming years.

But it was equally possible the next move in the interest rate would be up if more Australians found jobs and their wages rose, Philip Lowe told the National Press Club in Sydney on Wednesday.

“There are scenarios where the next move in the cash rate is up and other scenarios where it is down,” he said.

“Over the past year, the next-move-is-up scenarios were more likely than the next-move-is-down scenarios. Today the probabilities appear to be more evenly balanced.”

He was speaking after the central bank kept the cash rate at its record low of 1.5% on Monday. It had not shifted in 30 months.

The rate, which reflects what the central bank charges commercial banks on overnight loans and influences all other interest rates, was last cut in August 2016 and has not risen since November 2010.

Lowe said the RBA did not expect a change soon.

“It does not see a strong case for a near-term change in the cash rate,” he said.

Both the global and Australian economy were due to grow reasonably well in the coming two years, despite some looming global risks, he said.

But the strength of the housing market and how much people were spending their cash would be the greatest sources of uncertainty in the coming years.

Lowe was not certain what effect the housing correction would have on household consumption. But the RBA believed things were looking manageable after big rises in prices in recent years.

“What we are seeing looks to be manageable adjustment in the housing markets of Sydney and Melbourne,” he said.

“Most households do not change their consumption in response to short-term changes in their wealth.”



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