Boost to sav­ings could re­duce in­fla­tion: Re­serve Bank of Aus­tralia

The Pak Banker - - Company& -

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

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