RBA leaves the door open for more interest rate cuts

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The RBA is keen to see more stimulus moves from all governments to get the economy going again as it this week left the door open to more interest rate cuts.

Payroll data this week has revealed the jobs market is still struggling and RBA deputy governor Guy Debelle admitted in a keynote address it could take years before the central bank hit its economic targets.

Mr Debelle was speaking at a virtual conference of the Australian Industry Group and told them the economy faces a slow, gradual and uneven recovery despite the record-low interest rates and high government spending.

He said the central bank could look at lowering the structure of a range of interest rates across the economy without delving into negative rate territory.

“There is not, in my judgement, a trade-off between debt and supporting the Australian economy in the current circumstance,” he said.

“Absent the fiscal stimulus, the economy would be significantly weaker and debt levels even higher.

“This is particularly so with interest rates at their historically low levels, where the growth benefit from the fiscal stimulus will improve the debt dynamics and help service the debt in the future.”

The nation’s Treasurer Josh Frydenberg has indicated he will use the upcoming Federal Budget to announce a raft of further infrastructure spending to get Australians back to work.

Mr Debelle said the RBA’s inflation target is 2-3 per cent and would take at least three years to achieve and during that time he doubts the cash rate would be raised. He also noted the effect the current lockdown in Victoria is having on the rest of the economy.

“The virus is having its effect, particularly because of the lockdown in Victoria, but so too is the shortfall in demand that occurs in recessionary conditions,” he said.

“Until households and businesses are confident about future demand and income, they will be reluctant to spend and invest.”

Mr Debelle estimates the lockdown in our state has taken around 2 per cent from the national GDP in the September quarter.


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