MNI EXCLUSIVE: RBA Harper's View Consonant With Lowe Comments

--RBA Lowe Has Said There Are Scenarios That Could Trigger Cut

By Sophia Rodrigues

     SYDNEY (MNI) - The Reserve Bank of Australia thinks interest rates are more

likely to go up than down, but a loss in momentum in household consumption may

be one of the reasons where a cut could happen, according to board member Ian

Harper.

     Harper told MNI on Friday that his comments are "completely consonant" with

what Governor Philip Lowe said a few days ago.

     In reply to a question "So, the only way is up basically (for interest

rates)?" at Q&A following a speech in Perth on September 21, Lowe said, "No, I

wouldn't say that. There are scenarios where I could imagine having to cut

interest rates. I hope those scenarios don't eventuate though. I think we will

be better off, and people don't like hearing this, but we'll all be better off

if the next move is up rather than down."

     Earlier Lowe said market pricing suggests "it's more likely that interest

rates are going to go up than down. I would agree to that. And ... it's some

time before an interest rate increase is likely to occur and I would agree with

that."

     "More likely the interest rates will go up, and although not for some time,

people should prepare for higher interest rates. They're rising globally, and if

things work out well here, over time -- I'm not saying when -- but over time we

can expect higher rates and, in my own view, that could be a positive

development for the economy," Lowe said.

     In an Insight published Tuesday, MNI wrote the RBA is optimistic after

several recent positive data points but that optimism is tempered by some

headwinds, making it difficult to upgrade the central bank's view on growth and

inflation.

     The RBA's growth outlook remains supported by a non-mining investment

pickup, strong sentiment on business conditions and a large pipeline of

infrastructure investment. 

     But household spending remains a headwind. 

     To feel more positive about prospects for household spending, real wages

need to grow faster to bring down the household debt-to-income ratio, and

household debt growth has to slow.

     The outlook for household spending took a hit when data published by the

Australian Bureau of Statistics on Thursday showed retail sales fell by a sharp

0.6% m/m in August, matching a pace last seen in March 2013, accompanied by a

downward revision in July sales to -0.2% from a flat outcome originally

reported.

--MNI Sydney Bureau; tel: +61 2-9716-5467; email: sophia.rodrigues@marketnews.com

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