RBA hints at more rate cuts

By Gerv Tacadena | 26 Sep 2019

Reserve Bank of Australia Governor Philip Lowe has hinted at further rate cuts as the country's economy remains stagnant due to the lull in domestic spending.

In a speech at the Armidale Business Chamber in New South Wales, Lowe said the country would remain under a low interest-rate environment despite the economy hitting a gentle turning point.

"It is nevertheless likely that an extended period of low interest rates will be required in Australia to make progress in reducing unemployment and achieving more assured progress towards the inflation target," he said.

Also read: Big bank bets on October rate cut

Lowe said the central bank board is prepared to adjust the monetary policy further, if needed, to support sustainable growth in the economy. However, he also said that rate cuts are becoming "less effective".

"Once upon a time, when we lowered interest rates, people would run off to the bank to borrow to kind of go on a holiday or buy furniture or kind of do some spending. They don't do that anymore," he said.

What Australians do instead is to take advantage of the low interest-rate environment to pay off their mortgages.

While this trend could affect overall spending, Lowe is optimistic that this would help maintain the house-price growth. He said house prices would only cause concern if credit growth skyrockets, a scenario that is currently off the cards.

"It seems to me quite possible that we could have a period now of rising housing prices, because construction activity is slowing while the population is still rising quite quickly in the world. So there are some underlying drivers of housing prices," he said.

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