Reserve Bank of Australia governor Philip Lowe says the next interest rate move will likely be an increase that will come as a shock to many households given they haven’t seen one in seven years.
Dr Lowe spoke ahead of the release tomorrow (Friday) of the RBA’s first financial stability report of the year in which the central bank is expected to show that it is more relaxed about house prices and lending than a year ago.
But he made it clear in a speech in Perth yesterday that (http://www.rba.gov.au/speeches/2018/sp-gov-2018-04-11.html) that a rise is likely but insisted it will only happen once growth and household incomes (especially wages) lift.
He said “it is more likely that the next move in the cash rate will be up, not down, reflecting the improvement in the economy… But it is worth remembering that the most likely scenario in which interest rates are increasing is one in which the economy is strengthening and income growth is also picking up.”
But we shouldn’t expect a rise rise any time soon, according to Dr Lowe who again dampened expectations for a sudden pickup in growth and wages – improvements in both are likely to be “only gradual” and weaken the case for any near-term change in policy.
“… further progress in lowering unemployment and having inflation return to the midpoint of the target zone is expected to be only gradual. It is still some time before we are likely to be at conventional estimates of full employment.”
"And, given the structural forces also at work, we expect the pick-up in wages growth and inflation to be only gradual…(and), because the progress is expected to be only gradual, the Reserve Bank Board does not see a strong case for a near-term adjustment in monetary policy.,” Dr Lowe told his audience in Perth.
The best bet from the market is that there could be a rate in about a year’s time at the earliest, and it will all depend on the sustainability of wage rises and household incomes overall.
“A continuation of the current stance of monetary policy in Australia will help our economy adjust and should see further progress in reducing unemployment and having inflation return to target,’ Dr Lowe said.
In other words don’t believe any analyst of commentator who reckons we will get a rate rise this year.
