Boost to savings could reduce inflation: Reserve Bank of Australia
SYDNEY: A recent boost to Australian household savings could reduce inflationary pressures as the economy gears up for more mining investment, the central bank says.
Reserve Bank of Australia (RBA) Assistant Governor Philip Lowe says it's difficult to know whether there has been a long-lasting change in attitudes towards savings after two decades of rapid increases in household borrowing.
"But the restraint being exhibited by the household sector is turning out to be quite long-lasting," Dr Lowe told a conference of business economists in Sydney on Wednesday night.
"In preparing our own forecasts, we have, for some time, been assuming that the household saving rate stays high for quite a while yet," he said.
"If this were to occur, not only would it lead to a lowering of risk in household balance sheets, but it would reduce inflationary pressures during the period of high investment."
Dr Lowe said this was an area the Reserve Bank was watching closely.
" It is one where our approach of testing, learning and re-testing is important as we continue to review our forecasts," he said.
The latest national accounts figures, released last week, show a marked increase in the household sector's saving rate over recent years with the increase fully reversing the decline that took place from the end of the 1980s to mid 2003.
Somewhat "remarkably," the measured increase in the household saving rate in Australia has been larger than that in many other countries, including the United States, where the poor state of household balance sheets is weighing on the economy, Dr Lowe said. "And unlike in the United States, where household confidence is very low, this rise in saving has occurred in Australia at a time when confidence is quite high".
Dr Lowe outlined the RBA's forecasting techniques, which involve around 50 economists, and said it now appeared that many households view high levels of debt and low rates of saving as "more risky" than they did prior to the global financial crisis.
This had led some people to save a "little more" and others to borrow "a little less". "The strong growth in household incomes over the past year has made this easier to do," Dr Lowe said. -PB News