After the official cash rate dropped to 1% July, low interest rates could be here for “an extended period”, according to Reserve Bank of Australia (RBA) Governor Philip Lowe.
The central bank was prepared to provide additional policy stimulus if necessary, Lowe said.
“On our current projections, it will be some time before inflation is comfortably back within the target range. Whether or not further monetary easing is needed, it is reasonable to expect an extended period of low-interest rates,” Lowe said.
An expert saw Lowe’s comments as a tactic based on other central banks to guide market rates.
“This is a form of forward guidance, which the European and the Americans have used in various points of time. They are saying ‘we won’t ever think about raising rates’, which gives you an impression interest would be low for a long time,” said Shane Oliver, AMP chief economist.
However, the RBA chief said he was not shifting toward forward guidance, but being “as transparent as possible”.
The promise of lower for longer rates sent yields on 10-year government bonds to a record low of 1.237%, according to Reuters.
“The important thing for markets was that Lowe was still retaining his easing bias,” said David Bassanese, chief economist at BetaShares and economic advisor for the National Institute for Economic and Industry Research.
Based on the central bank’s forecasts, another cut is not needed, but the risk is that the RBA’s forecasts end up being optimistic, according to Bassanese.
“They have tended to be more on the optimistic side than how things have been playing out,” Bassanese said.
