RBA signals that it is in no hurry to join Yellen even as economy is improving

SYDNEY: Australia’s central bank chief signaled no rush to join global peers in reining in stimulus even as the nation’s economy “does look to be improving”.

Hours after the Federal Reserve suggested it would hike again this year, Philip Lowe reiterated that a rise in global interest rates “has no automatic implications” for Australia, in a speech delivered in Perth. The Australian dollar fell almost half a US cent.

Still, Lowe warned that the tightening would eventually flow through Down Under and people should be prepared for that as the jobs market improves and inflation rises. He said a flexible currency gives the central bank “considerable independence regarding the timing as to when this might happen.”

“There was some speculation that Lowe may have used the speech to lay the ground work for future rate hikes,” said Kristina Clifton, an economist at Commonwealth Bank of Australia. “Instead, the speech had a more medium term focus.”

Seeking to close the door on the mining boom era and explore the economy’s “next chapter”, Lowe discussed the impact of technology and the growth of Asia; the normalisation of international monetary conditions; the effects of higher levels of household debt; and the capability of Australia’s workforce and businesses to be flexible, innovative and adaptable.

The Reserve Bank of Australia has kept interest rates at a record low for the past 13 months to spur a transition to services from mining. In his speech, the governor was positive on the outlook for business investment and the strength of employment growth.

“We have provided support and allowed time for the economy to adjust to the new circumstances. “In its decisions, the board has been careful to balance the benefit of providing this support with the risks that can come from rising household debt,” Lowe said.

“We look to be on course to make further progress in reducing unemployment and moving towards the midpoint of the medium-term inflation target. This would be a good outcome.” The governor also stressed the importance of the United States as a supporter of open markets and a rules-based international system and its role as a breeding ground for much of the progress in technology. — Bloomberg