MNI RBA Debelle: MonPol Stance May Change If Risks Materialize

By Sophia Rodrigues

     SYDNEY (MNI) - The Reserve Bank of Australia expects interest rates to rise

at some point if its central forecasts materialize but the stance of monetary

policy could change if the risks around the forecasts come to pass, Deputy

Governor Guy Debelle said Tuesday.

     Debelle spoke in Sydney at the CFO Forum on the topic, "The outlook for the

Australian economy."

     Like recent speeches from Governor Philip Lowe, Debelle's speech had the

"glass half-full" touch as he talked about expectations of further progress on

both inflation and unemployment over the period ahead, though at a "gradual"

rate.

     "If the economy continues to evolve as expected, higher interest rates are

likely to be appropriate at some point. Notwithstanding this, the Board does not

currently see a strong case for a near-term adjustment in the cash rate," he

said.

     At the same time, he discussed some of the uncertainties around the

outlook, reminding that they had the potential to change the stance of monetary

policy.

     Among the uncertainties, Debelle cited global inflation outlook, trade

tensions and China as the ones from the global side. On the domestic side,

Debelle discussed household balance sheets as the main uncertainty and related

to them the risks from interest rate resets on interest-only mortgages, further

tightening in lending standards and low wages growth.

     "These are some of the uncertainties that the Board discusses in its

monetary policy deliberations. They are not the central case, but they are some

of the risks around it," Debelle said.

     "Should these risks come to pass, then they are likely to have a material

effect on the Bank's outlook for the economy. In turn, it is quite possible that

such revisions would be consequential for the Board's assessment of the

appropriate stance of monetary policy," he added.

     Talking about uncertainty from global inflation outlook, Debelle said a

rise in growth and inflation offshore could lead to a depreciation of the

Australian dollar, given that the Australian economy appears currently to have

more spare capacity than some other advanced economies. 

     "If this were to occur, we would expect it to boost domestic output and

lead to a faster rise in inflation than currently assumed, but somewhat later

than in other economies," he said,

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

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