A cut in official interest rates is on the cards after Reserve Bank governor, Philip Lowe made it clear the central bank’s attempts to lift inflation and cut unemployment will not be met on current policy settings.
Speaking at an economists lunch in Brisbane yesterday, Dr. Lowe said a rate cut would be on the agenda at the June 4 meeting of the bank board.
Dr. Lowe said without a cut in interest rates it was unlikely the bank’s forecasts for lower unemployment and a lift in inflation would be met.
“A lower cash rate would support employment growth and bring forward the time when inflation is consistent with the target,” he said.
“Given this assessment, at our meeting in two weeks’ time, we will consider the case for lower interest rates,” Dr. Lowe told his audience.
The RBA last cut rates in August 2016, when they were cut to 1.5%. That was after a rate cut in May of the same year.
Dr. Lowe said while current policy settings could drive unemployment lower, “the recent flow of data makes it seem less likely”.
He said there was a range of options to help cut the jobless rate.
“These include further monetary easing; additional fiscal support, including through spending on infrastructure; and structural policies that support firms expanding, investing and employing people,” he said.
“Relying on just one type of policy has limitations, so each of these is worth thinking about.”
Dr. Lowe noted that while there had been a lift in wages growth, it was still well short of what would be expected with unemployment around 5 percent.
Without a lift in wages, there was unlikely to be an increase in inflation.
“Wages growth remains lower than the rate that would appear consistent with inflation being comfortably within the target range,” he said.
