Tuesday, 24 September, 2019
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2019-09-24 10:05:00.8 GMT
By Michael Heath
(Bloomberg) — Australia’s central bank chief Philip Lowe
reiterated that his economy is at a “gentle turning point” and
gave little indication that an interest-rate cut was in the
immediate offing, potentially disappointing economists expecting
one within days.
“At our board meeting next week, we will again take stock
of the evidence,” the Reserve Bank governor said in the text of
a speech Tuesday in Armidale, a regional city in northern New
South Wales. “Further monetary easing may well be required.
While we are at a gentle turning point and expect growth to pick
up, the strength and durability of this pick-up remains to be
Lowe eased in June and July to 1% and reaffirmed — as he
did again Tuesday — that an extended period of low rates was on
the cards, as ongoing uncertainty abroad and weak household
spending at home drag on the economy. The governor noted that
over the past year there has been “no growth at all in
consumption per person,” a result he described as unusual given
hiring has remained strong.
In predicting an upturn in the economy, the RBA chief noted
that GDP growth over the first half of this year was stronger
than in the second half of 2018 and said the RBA is expecting “a
further modest pick-up” in the quarters ahead.
That’s based on his frequently mentioned combination of
tailwinds: rate cuts and tax refunds, a weaker currency, and
infrastructure and mining investment. Lowe estimates that the
government’s cash rebate will boost aggregate household income
by 0.6% this year, adding that past experience suggests that
around half of the tax refunds will be spent.
In addition, there hasn’t been “the same spike in the
measure of policy uncertainty in Australia” seen in the world
economy, he said. “There has, however, been some softening in
measures of business conditions.”
The RBA’s back-to-back rate cuts have already begun to show
up in a strengthening Sydney and Melbourne property market, but
are likely to take longer to flow through the economy, perhaps
explaining the reluctance to resume easing so soon.
Still, Lowe highlighted that while Australia’s floating
exchange rate gave it some policy flexibility, as a small, open
economy it can’t remain impervious to what global central banks
are doing. This month both the U.S. and Europe have eased in
response to international volatility, from the U.S.-China
confrontation to Brexit to Hong Kong to South Korea-Japan,
that’s discouraging investment.
Curiously, while the governor mentioned the economy’s
“gentle turning point” three times in his address, reiterating a
comment from August, he failed to call on the government to
increase fiscal support for the first time in a while. That
likely reflects a realization that with Treasurer Josh
Frydenberg recommitting to a budget surplus in fiscal 2020 and
maintaining the government is doing enough to support the
economy, there’s little to be gained.
“Regardless of the short-term outlook for monetary policy,
the point about the solution to low global rates is relevant
here in Australia too,” Lowe said. “We will all be better off if
businesses have the confidence to expand, invest, innovate and
hire people. Given Australia’s strong fundamentals, this is not
out of our reach, but it does require constant effort.”
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Chris Bourke, Malcolm Scott