RBA open to further rate cuts, says Stevens

by Julia Corderoy11 Jun 2015
The Reserve Bank governor says he is open to the possibility of further rate cuts, however he warns that doing so could have consequences. 

In an address to the Economic Society of Australia held in Brisbane, governor Glenn Stevens says Australia’s central bank remains open to further monetary policy easing due to “below trend” growth.

“…Export volume growth contributed strongly, while domestic final demand increased by a bit under 1%, which is quite a weak result,” he said.

“Housing construction rose strongly, and consumer spending over the year rose by more than real household income (that is, the saving rate fell). Both these results owe a good deal to low interest rates and rising asset values.

“But other components of demand were weak. Business investment fell substantially, with mining investment falling quickly and, as best we can tell, non-mining capital spending also weak. Public final spending didn't grow at all. Public investment spending fell by 8% over the past year.

“Overall, these outcomes are weaker that what, two years ago, we expected would be happening by now.”

However, Stevens warns that relying too heavily on monetary policy can lead to “much bigger problems”.

“Much of the effect of monetary policy comes through the spending, borrowing and saving decisions of households. There isn't much cause from research, or from current data, to expect a direct impact on business investment. 

“But of all the three broad sectors – households, government and corporations – it is households that probably have the least scope to expand their balance sheets to drive spending. That's because they already did that a decade or more ago. 

“Their debt burden, while being well serviced and with low arrears rates, is already high. It is for this reason that I have previously noted some reservations about how much monetary policy can be expected to do to boost growth with lower and lower interest rates. 

“It is not that monetary policy is entirely powerless, but its marginal effect may be smaller, and the associated risks greater, the lower interest rates go from already very low levels.”


  • by Macarthur Broker 11/06/2015 11:15:15 AM

    The RBA willl need to lower the cash rate to undo the damage being done by the ridiculous comments coming out of APRA at the moment.