The Reserve Bank of Australia’s governor Philip Lowe has said that the possibility of rates going up or down is more even than before.
The comments by Mr Lowe were made in a speech in the National Press Club following the latest rates decision which was to hold at 1.5 per cent.
Mr Lowe said there were a few scenarios where the next cash rate movement was up and other scenarios where it is down.
“Over the past year, the next-move-is-up scenarios were more likely than the next-move-is-down scenarios. Today, the probabilities appear to be more evenly balanced,” he said.
Mr Lowe said the RBA would continue to assess the outlook carefully with labour markets being one indication to influence a rate rise.
“If Australians are finding jobs and their wages are rising more quickly, it is reasonable to expect that inflation will rise and that it will be appropriate to lift the cash rate at some point,” he said.
On the other hand he said it was possible that the economy could be softer than expected which would hit income and consumption growth.
“In the event of a sustained increased in the unemployment rate and a lack of further progress towards the inflation objective, lower interest rates might be appropriate at some point,” he said.
However, despite saying the rates could move, Mr Lowe did not see the cash rate changing in the near term.
“It (the RBA board) does not see a strong case for a near-term change in the cash rate.
“We are in the position of being able to maintain the current policy setting while we assess the shifts in the global economy and the strength of household spending,” he said.
The RBA had downgraded its forecasts for the economy to a growth of three per cent and 2.75 per cent in 2020 said Mr Lowe.
“For 2019 and 2020, the forecasts have been revised down by around 1/4 percentage point, largely reflecting a modest downgrading of the outlook for household consumption and residential construction.”
Mr Lowe put the housing correction into context by noting the sharp rise of prices in Sydney and Melbourne over the recent years.
Falling house prices together with low income growth would be a bad scenario said Mr Lowe and it was one that the RBA was monitoring.
“Some Australian households have high levels of debt, so there is a degree of uncertainty about how they would respond to this combination. So we are monitoring things closely."
Mr Lowe also touched on the royal commission which he said seemed balanced and sensible on its credit recommendations.
“The commission’s recommendations that bear on credit provision are balanced and sensible, and should remove some uncertainty.
“I also welcome the commission’s focus on: the importance of service – as opposed to sales – in the financial sector; the necessity of dealing properly with conflict of interest issues; and the importance of accountability when things go wrong,” he said.
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