Reserve Bank Governor Philip Lowe has made it clear he wants the federal and state governments to help monetary policy lift the Australian economy, wages and keep employment buoyant.
His call came as the National Australia Bank adjusted its rate cut call and nominated July as when the cut to 1% would happen (although the bank didn’t rule out August).
“The most recent data – including the GDP and labour market data – do not suggest we are making any inroads into the economy’s spare capacity,” Dr. Lowe said in Adelaide.
“Given this, the possibility of lower interest rates remains on the table. It is not unrealistic to expect a further reduction in the cash rate as the Board seeks to wind back spare capacity in the economy and deliver inflation outcomes in line with the medium-term target.
He told the conference in Adelaide yesterday that it was “unrealistic” to expect a lower cash rate to boost growth on its own and again said governments should do more spending on infrastructure, and training and other measures to support the rate cut.
Dr. Lowe said fiscal stimulus and policy changes to support the business investment needed to be considered to maximise national prosperity.
“As a country, we should also be looking at other ways to get closer to full employment,” Dr. Lowe said.
“One option is fiscal policy, including through spending on infrastructure. Another is structural policies that support firms expanding, investing, innovating and employing people.
In his written speech, Sr Lowe did not mention tax cuts – which seems to be as much as the Morrison government is willing to do.
He told a Committee for Economic Development of Australia event in Adelaide that the 0.25 percentage point cut to the cash rate the RBA made two weeks ago would support the economy through lowering the exchange rate and the cost of business and personal finance.
“It would, however, be unrealistic to expect that lowering interest rates by a quarter of a percentage point will materially shift the path we look to be on,” Dr. Lowe said on Thursday.
Dr. Lowe said the decision to cut the cash rate to a fresh record low 1.25 percent had not been taken in response to a deterioration in the economic outlook since the RBA’s May meeting.
“Rather, it reflected a judgment that we could do better than the path we looked to be on,” he said.
But he also made clear that further rate cuts are likely which was a restatement of the minutes of the RBA’s June meeting, which were released on Tuesday.