Sue Lannin| November 5, 2015| ABC
Official interest rates are likely to stay on hold for some time because inflation is under control and home prices appear to be cooling down, the Reserve Bank governor has told a major economic conference.
In a speech to the Economic and Social Outlook Conference in Melbourne, Glenn Stevens said official rates were more likely to go down than up.
“It seems likely that an accommodative stance will be appropriate for some time yet,” Mr Stevens said.
“I think everyone knows that were a change to monetary policy to be required in the near term, it would almost certainly be an easing, not a tightening.”
Let me be clear that in making these comments I am not, repeat not, offering any endorsement of what the banks have done here.
Reserve Bank governor Glenn Stevens
In his speech, titled The Path to Prosperity, the RBA governor said consumer inflation was tame and home prices appeared to have come off the boil, adding to the case for a future cut in official rates if the economy slowed down.
“The rate of CPI inflation is clearly no impediment to easing,” he said.
“The housing market, to the extent that’s an issue, may be calming though by how much and how persistently we can’t yet know.”
RBA monitoring the impact of mortgage rate rises
Mr Stevens also noted the central bank was watching the impact of major banks raising their mortgage interest rates.
Major banks and several smaller lenders have raised their interest rates on home loans independently, blaming the increase on stricter capital requirements and prompting speculation that the RBA would cut official rates on Melbourne Cup to offset the increases by the banks.
But the RBA kept rates on hold this week, although it did indicate it may cut official rates further from the current record low of 2 per cent.
Mr Stevens told the conference he did not think the independent rate rises by the banks would have much impact on the improving Australian economy because of the big reduction in rates over the past two years.
He said recent rate increases by the banks were the equivalent of roughly half a 25 basis point rise in the official cash rate.
“My preliminary assessment is that the macroeconomic effect of these actions in themselves may not be large,” Mr Stevens said.
“It is one part of a much bigger and evolving landscape. Let me be clear that in making these comments I am not, repeat not, offering any endorsement of what the banks have done here.”
Economy rebalancing after the end of mining boom
Mr Stevens also said Australia was coping well with the end of the mining boom.
“We are probably roughly halfway through the decline in resources sector capital spending now; the headwinds from that source are about as intense now as they are likely to get,” he said.
“We are still growing. It would be good if the growth was a bit stronger, but nonetheless over the past year the non-mining side of the economy has generated respectable growth in employment.
“The rebalancing is occurring.”
But he warned that Chinese economic growth was uncertain and presented a challenge for Australia’s miners in a world with lower demand for commodities.
The RBA will release its latest growth and inflation forecasts tomorrow in its statement on monetary policy.
TD Securities chief Asia-Pacific macro strategist Annette Beacher said the argument that higher bank mortgage rates would lead to a RBA cut had been “smashed to pieces”.
Ms Beacher said she expected the RBA to lower its inflation forecasts from 2.5 per cent for December 2015 to 2.25 per cent and to keep its GDP forecasts steady.