RBA’s Lowe sees room to ease, wants lower cur­rency

The Pak Banker - - COMPANIES/BOSS -

Aus­tralian cen­tral bank Deputy Gov­er­nor Philip Lowe re­it­er­ated that low wage growth and con­tained in­fla­tion pro­vide scope to cut rates fur­ther and said, like most of his global peers, he'd pre­fer a weaker cur­rency.

The Re­serve Bank of Aus­tralia's no. 2 of­fi­cial said the econ­omy had proved pretty re­silient to the wind­ing back of a mas­sive min­ing in­vest­ment boom and a com­modi­ties rout, aided by the com­bi­na­tion of a lower cur­rency, record-low wage growth and a flex­i­ble la­bor mar­ket -- with the lat­ter be­ing a key barom­e­ter for any fur­ther eas­ing.

"As the Re­serve Bank has in­di­cated for some time, this low in­fla­tion out­look pro­vides scope for eas­ier mon­e­tary pol­icy should that be ap­pro­pri­ate in sup­port­ing de­mand growth," Lowe said in the text of the speech in Ade­laide. "An im­por­tant fac­tor here will be whether the growth in ag­gre­gate de­mand con­tin­ues to be suf­fi­cient to ac­com­mo­date the growth in our la­bor force."

The cen­tral bank has paused in­ter­est rate cuts at a record-low 2 per­cent for the past 10 months as it al­lows ear­lier stim­u­lus to work its way through the econ­omy. There are signs of an up­swing as the econ­omy ex­panded 3 per­cent in the fourth quar­ter from a year ear­lier and added the most jobs on record in the same pe­riod.

Yet the early por­tents for this year, par­tic­u­larly from off­shore, have been less en­cour­ag­ing. China, the na­tion's largest trad­ing part­ner, is un­der­go­ing a dif­fi­cult tran­si­tion to a more con­sump­tion-led and ser­vice-based econ­omy, while deal­ing with high lev­els of cor­po­rate debt and the com­pli­ca­tions of open­ing its cap­i­tal ac­count, said Lowe, the heir-pre­sump­tive for Glenn Stevens when the cur­rent gov­er­nor re­tires in Septem­ber.

Then, there's global mon­e­tary pol­icy: the U.S. raised rates in De­cem­ber while the Bank of Ja­pan joined the Euro­pean Cen­tral Bank, the Swiss Na­tional Bank, the Swedish Riks­bank and the Dan­ish cen­tral bank in adopt­ing neg­a­tive rates. That's helped re­verse the Aus­tralian dol­lar's de­pre­ci­a­tion and Lowe said the RBA would pre­fer the cur­rency to weaken.

Most cen­tral banks would like lower cur­ren­cies as global growth is dis­ap­point­ing and in­fla­tion out­comes are low, he said in re­sponse to ques­tions af­ter the ad­dress, adding "I think, like ev­ery­one, we would wel­come a slightly lower ex­change rate" to help with re­bal­anc­ing of the econ­omy.

The Aus­tralian dol­lar traded at 74.34 U.S. cents at 1:17 p.m. in Syd­ney af­ter sink­ing to a near seven-year low of 68.64 cents in mid-Jan­uary. But that comes af­ter a 27 per­cent slide in the past three years, bol­ster­ing the com­pet­i­tive­ness of the na­tion's ser­vices in­dus­tries, which Lowe noted in his speech have been key driv­ers of hir­ing.

"Health care has been a stand­out, with an­nual growth in jobs av­er­ag­ing about 4.5 per­cent over the past two years," he said. "There has also been strong growth in jobs in busi­ness ser­vices, fol­low­ing a pe­riod of weak­ness a few years ago when ex­plo­ration ac­tiv­ity and pre-con­struc­tion work in the re­sources sec­tor were be­ing scaled back."

The deputy gov­er­nor said that, as Chi­nese de­mand for Aus­tralian re­sources wanes and prices fall, wealth cre­ation in Aus­tralia will come back to find­ing greater ef­fi­ciency in the econ­omy. In­deed, he noted that av­er­age real in­come in Aus­tralia was no higher to­day than in 2008, fol­low­ing 17 years of "re­mark­able" av­er­age growth of 3.1 per­cent per year.

"There is no es­cap­ing the fact that fu­ture growth in the av­er­age in­come of Aus­tralians re­lies largely on our abil­ity to lift our pro­duc­tiv­ity," Lowe said. "While the re­bal­anc­ing and re­silience of our econ­omy is cer­tainly some­thing to wel­come, the longer-term chal­lenge is to lift our liv­ing stan­dards through find­ing new things to do and bet­ter ways of do­ing what we cur­rently do." "The need for this is made more press­ing by the fact that the growth mo­men­tum in the global econ­omy is less than it once was."

Newspapers in English

Newspapers from Pakistan

© PressReader. All rights reserved.