RBA Governor says cash rate to stay low for up to 3 years

- August 14, 2020 2 MIN READ

This morning Reserve Bank Governor, Phillip Lowe, fronted (digitally) a parliamentary committee and had a lot to say.

The highlights for me of what he said are:

– The official cash rate of 0.25 per cent will stay at this level for up to 3 years. He says that will help business (and average Australians) to plan their borrowing and investing with some certainty. It also helps the Government fund its debt at low interest rates.

– He wouldn’t rule out interest rates going even lower and even into negative. “In the current environment it’s best not to rule anything out”, but negative rates remain “extraordinarily unlikely”.

“Negative interest rates wouldn’t help jobs, they would make it worse. The consensus is that the costs of negative rates are greater than the benefits.”

– States should prioritise creating jobs over preserving their credit ratings.

“Going forward the challenge is to create jobs and the state governments control most of the levers here. I would hope over time we would see more investment for jobs and the States have a crucial role here.”

– He advises against lifting of compulsory superannuation levels because it would put downward pressure on demand in the economy and restrain wages growth.

– High unemployment will stay for some time. “…high unemployment is likely to be with us for some time, which should be a concern for us all. The Reserve Bank will do what it can with its policy instruments to support the journey back to full employment.”

– Economy still looking solid. “When we met six months ago, I said that there were signs that the Australian economy may have reached a gentle turning point. The data that we have received since then are consistent with this. Our central forecast is that economic growth in Australia will pick up from an average rate of 2 per cent over the past couple of years to 2¾ per cent this year and 3 per cent over 2021.”

– Our biggest trading partner is in pretty good shape. He said China is doing better than most countries in dealing with the virus and placing its economy on a recovery track, adding that recent data had “surprised on the upside”.

Also read my detailed economic update for the week on how wage growth could stay low for a while, superannuation is recovering nicely and property rents still declining