Interest rates may be cut again, new Reserve Bank governor says

Philip Lowe voices unease about Australia’s housing affordability crisis and says he’d like to see banks regain trust

The new Reserve Bank of Australia governor, Philip Lowe, says the official cash rate may be cut again, despite it sitting at a record low already.

Lowe also spoke about the housing affordability crisis, saying it was not in society’s interest for prices to keep rising much faster than incomes, as has taken place over the past decade in most Australian capitals.

He also said he would like Australia’s banking industry to regain its reputation of being a strong service profession, where staff behaved in ways that benefited clients, and where banks were trusted and considered custodians.

Speaking at a parliamentary hearing on Thursday, Lowe said it was possible that interest rates could be cut again in Australia, from a record low 1.5% to an even lower 1.25%. He said financial markets were factoring in a 50% probability of another rate cut.

“That’s possible, it’s going to depend on a whole range of factors, like what happens overseas, what the next inflation data look like, how the labour market’s performing, how the housing market’s performing,” he said.

“Certainly there are scenarios where rates would fall again, there are scenarios where they wouldn’t need to fall again.”

It was the first time Lowe had appeared publicly since becoming RBA governor. He replaced Glenn Stevens on Sunday.

Lowe told the House of Representatives economics committee that he wanted banks to regain their reputation for being deeply trusted organisations. He said bank bosses should structure their remuneration for staff to encourage behaviour that benefited clients as well as banks.

“There have been too many examples of poor outcomes, particularly in wealth management and insurance industries, it’s disappointing to us all,” he said. “I think it comes down to incentives within the organisations, and that’s largely remuneration structures, and that’s the responsibility of management.

“What I would like to see is really kind of, banking return to be seen as a strong service profession, I don’t know how far away from that we are.

“Banking historically has been a profession, a profession of stewardship, custodians, service, advisory, and counsellor. It’s not a marketing or product distribution business.”

Lowe said he would like to see more people to sign up to the banking and finance oath.

On house prices, Lowe said it was not in society’s interest for prices to keep rising a lot faster than incomes, because it progressively corroded the health of our balance sheets. “As a father of three children, I worry about that because people are paying so much for their housing,” he said.

“[But] the solution to that, and I’m going to sound like a broken record here, is housing supply, and investment in transportation infrastructure. We pay a lot for our houses ... the value of our land relative to income is incredibly high.

“Why is that? Because we all want to live in these fantastic cities close to the coast and we haven’t invested enough in transport, so the locational value of land is really high, and that’s the underpinning factor to high house prices.”

He also said it was unlikely that the RBA would need to use highly unconventional monetary policy to encourage growth.

But he said monetary policy had stopped working globally because governments and businesses did not want to use low interest rates to increase their spending.

He urged private businesses or governments to use low interest rates to invest, using their balance sheets to facilitate infrastructure spending.


Gareth Hutchens

The GuardianTramp

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