The central bank governor has suggested that there will be no more cuts to official interest rates, and that the next move will likely be up.
Speaking at an event in Brisbane, Reserve Bank governor Philip Lowe said the economy has responded well to low interest rates, with most indicators showing improvement.
“The current low level of interest rates is helping the Australian economy. It is supporting employment growth and a return of inflation to around its average level. Encouragingly, growth in the number of Australians with jobs has picked up over recent months and the unemployment rate has come down a bit. The investment outlook has also brightened. Inflation has troughed and it is likely to increase gradually over the next couple of years. These are positive developments,” Mr Lowe said.
However, he noted that it has been a delicate balancing act to stimulate the wider economy but not overheat the housing market – particularly on the east coast.
And, with economic data pointing towards continued growth and household lending already ballooning, the time will come sooner rather than later to begin raising interest rates.
“The cash rate is around 2 percentage points below our current estimate of the neutral rate. As we make further progress on both unemployment and inflation, we could expect the cash rate to move towards this neutral rate over time,” said Mr Lowe.
The good news for business owners, however, is that such an increase is likely to be a while off yet.
“It will be some time before we are at what could be considered full employment in Australia and before underlying inflation is at the mid-point of the medium-term target range. This means that stimulatory monetary policy continues to be appropriate.”