There’s increasing speculation that the Reserve Bank may cut interest rates later this year but the central bank has moved to dispel that notion this week.
RBA deputy governor Guy Debelle said they expected economic growth would be enough to ensure there’d be no need for the bank to cut rates.
Speaking in Adelaide this week, Mr Debelle said the RBA expects to see decent growth in the economy.
“Our expectation is that we will see decent growth in the economy,” he said.
“And so we won’t have to get to that point [of an interest rate cut].”
Mr Debelle did say that if required, although the official cash rate is at record lows, the central bank did have in its capacity the ability to cut rates again.
He also talked about the falling housing markets in Melbourne and Sydney, which he says were declining in an orderly way, but were responsible for a lot of the sluggish consumption figures.
“We don’t have a lot of precedent to guide us,” he said.
“We haven’t seen this sort of situation unfold.”
“We just really need to see how that unfolds over the next little while to get a sense of where the economy is both at, and where it’s likely to go.”
Mr Debelle said the RBA were concerned about falling house prices affecting household wealth.
“Negative equity [where the value of the property is less than the value of the mortgage] has also increased, though our estimates are that it also is at a low level and is again concentrated in Western Australia and mining regions.”
“The critical factor in the future evolution of both arrears and negative equity is whether the household with the mortgage has an income and a job.”
Mr Debelle pointed to ongoing low wage growth as the major factor holding back consumption in the economy.