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Free AccessRBA's Lowe: Balancing Monetary Stimulus Benefit With Debt Risk
By Sophia Rodrigues
MELBOURNE (MNI) - The Reserve Bank of Australia has been patient with its
monetary policy decisions as it continues to strike a balance between the
benefit of adding more stimulus to the economy versus the medium-term risk of
rising levels of debt relative to income, Governor Philip Lowe said Friday.
Lowe made the comments in his opening speech to the House of
Representatives' Standing Committee on Economics here.
A broadly steady jobless rate has given the RBA flexibility to be patient,
Lowe said.
The RBA's current cash rate setting of 1.5% is supporting employment growth
and a return of inflation to around its average rate of the past couple of
decades, he added.
"The Board is seeking to do this in a way that does not add to the
medium-term balance-sheet risks facing the economy. It has been conscious that a
balance needs to be struck between the benefits of monetary stimulus and the
medium-term risks associated with rising levels of debt relative to our
incomes," Lowe said.
"The fact that the unemployment rate has been broadly steady has allowed us
this patience. We have preferred a prudent approach, which is most likely to
promote both macroeconomic and financial stability consistent with the
medium-term inflation target," Lowe said.
One factor that is influencing the outlook for both economic growth and
inflation is the exchange rate, Lowe said, with the recent rise in the
Australian dollar reducing the price for imported goods and weigh on the outlook
for domestic output and employment.
"Further appreciation, all else constant, would cause a slower pick-up in
inflation and slower progress in reducing unemployment," Lowe said.
Two things the RBA continues to watch closely are household spending
behavior and the housing market, he said.
The household sector is dealing with lower growth in real wages and at the
same time with higher levels of debt relative to income. An additional headwind
is higher electricity prices.
"This all means that consumer spending behaviour is something we continue
to watch carefully," Lowe said.
--MNI Sydney Bureau; tel: +61 2-9716-5467; email: sophia.rodrigues@marketnews.com
[TOPICS: MMLRB$,M$A$$$,M$L$$$,MT$$$$]
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Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.