Wed, May 22, 2019 - Page 10 News List

RBA considering rate cut next month: Lowe

Bloomberg

The Reserve Bank of Australia (RBA) would consider easing monetary policy at next month’s meeting to drive faster hiring, Governor Philip Lowe said, adding that unemployment needs to fall below 5 percent to help return inflation to target.

“A lower cash rate would support employment growth and bring forward the time when inflation is consistent with the target,” Lowe said in a speech in Brisbane yesterday. “Given this assessment, at our meeting in two weeks’ time, we will consider the case for lower interest rates.”

Lowe’s confirmation of an easing bias followed the release of minutes of the bank’s policy meeting this month where it said recently downgraded growth forecasts would have been even lower if they had not incorporated current market forecasts for two rate cuts.

That came on the heels of regulators earlier yesterday proposing to ease rules to allow homebuyers to borrow more, suggesting an injection in the offing for the housing market and economy.

A concession that easier policy is required reflects persistent labor market slack, and mounting evidence of households reining in spending and slowing the economy.

Unemployment last month climbed to 5.2 percent and inflation in the first three months of this year was tepid.

The Australian dollar dropped on Lowe’s comments.

“The labor market has surprised on the upside over recent times, and it could do so again,” Lowe said. “While we can’t rule out this possibility, the recent flow of data makes it seem less likely.”

Still, Lowe said it was possible that current policy settings were sufficient to deliver lower unemployment.

In a question-and-answer session following the speech, the governor dismissed suggestions that the RBA had held off from cutting this month because of Saturday’s election, which delivered a surprise victory for Australian Prime Minister Scott Morrison’s coalition government.

Lowe said that the vote had “no role at all” as the board comes to a decision “and implements that regardless of the political situation.”

He said that the RBA has this year been reassessing what level of unemployment is compatible with the inflation target, and evidence had been mounting that it was below 5 percent.

Data since the last meeting were consistent with that, he said.

The potential delay of proposed government tax cuts to next financial year could reduce household income growth by 0.3 percent this calendar year, Lowe said.

The RBA is relying on tax relief to boost Australians’ disposable income growth to 4 percent in the next couple of years.

It is rising at an average pace of just 2.75 percent, compared with 6 percent over the preceding decade.

“It would be good if there’s a way for the households to get those tax offsets,” he said.

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