Rate cut as likely as a rise

RBA boss says don’t be certain next move is up

RESERVE Bank Governor Philip Lowe says Australia’s cash rate might be cut further if income and spending growth are weaker than expected in the coming years.

But it is equally possible that the next move in the interest rate will be up, if more Australians are finding jobs and their wages rise, Mr Lowe said during a National Press Club address in Sydney.

“Looking forward, there are scenarios where the next move in the cash rate is up and other scenarios where it is down,” Mr Lowe said yesterday.

“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.”

His comments came after the central bank kept the cash rate at its record low of 1.5 per cent on Monday, as widely anticipated, meaning it has not shifted its monetary policy settings in 30 months.

The rate, which reflects what the central bank charges commercial banks on overnight loans and influences all other interest rates, was last cut in August 2016 and hasn’t been hiked since November

2010.

Despite flagging that the next move in interest rates could equally be in either direction, Mr Lowe said the RBA did not expect a change any time soon.

“It does not see a strong case for a near-term change in the cash rate,” he said.

The governor said both the global and Australian economies were due to grow reasonably well in the coming two years, despite some looming global risks.

“The central scenario is for the world economy to grow reasonably well over the next couple of years,” he said.

However the strength of Australia’s housing market and how much people were splashing their cash would be the greatest sources of uncertainty in the local economy, he said.

Mr Lowe (pictured) is not certain what impact the correction will have on the level of household consumption.

But the RBA does believe things are looking manageable, on the back of big hikes in prices in recent years.

“What we are seeing looks to be manageable adjustment in the housing markets of Sydney and Melbourne,” Mr Lowe said. “Most households do not change their consumption in response to short-term changes in their wealth.”

Mr Lowe also welcomed the flagged tax cuts, while also saying it was important to balance the budget.