The governor of the Reserve Bank of Australia has hosed down speculation of a cash rate cut next year.
In his annual end of year interview with the Australian Financial Review
, governor Glenn Stevens
warned not to put too much stock in rate cut rhetoric.
“We have had, a few times over the period of stability that we have already had, at various times some commentators saying they still think rates might go down a bit. That swung to ‘They will go up’. It swung around a few times,” he said.
In fact, looking back on the past year, Stevens says the Australian economy hasn’t dished out any major surprises.
“We were saying the inflation rate would be between 2 and 3 – well, it is. We don’t forecast a point number for unemployment, but I think it was fairly clear that the unemployment rate would probably incrementally go up a bit over that time – it has done that. So in that sense, things as they sit right now, are not especially different, I wouldn’t say, to what was expected a year ago.”
The cash rate has been sitting at its historical low of 2.5% for 15 consecutive months now. When asked whether further rate cuts would even deliver any more stimulus to the economy, Stevens said there can be a fine line between stimulating the economy and scaring the economy.
“I think what you would say is that these are the sorts of levels where things that could accompany even lower rates that are a little bit unhelpful enters the thinking. So there’s more of a cost-benefit calculation to be done, I suppose. Perhaps that’s better said as more of a risk-reward calculation,” he said.
“If there is a confidence-enhancing narrative surrounding a decision to lower interest rates, if that would actually be helpful, then that’s obviously something that needs to be on the table.”
However, Stevens said although they can’t be “perfectly predictable” about what the future holds, the cost of money doesn’t seem to be the issue but rather consumer confidence, or “animal spirits” – and Stevens believes that the best way to instil confidence is to promote stability.
“In my view, over the past year or so, I have been asking myself what can we do that will be most conducive to supporting confidence, predictability, the sense that people can make some plans for their business, their own life, whatever it might be. And the view I came to pretty early on was: what we should be doing is giving a message of stability and predictability insofar as we can.”