Breaking News
Get 40% Off 0
Is NVDA a 🟢 buy or 🔴 sell? Unlock Now

Australia's central bank government says 'reasonable' to expect lower rates for longer

Published Jul 25, 2019 02:55AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
© Reuters. FILE PHOTO: Australia's new Reserve Bank of Australia (RBA) Governor Philip Lowe speaks at a parliamentary economics committee meeting in Sydney
 
AU10Y...
-1.47%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 

By Swati Pandey

SYDNEY (Reuters) - Australia's top central banker flagged low interest rates for an "extended period" on Thursday, driving bond yields to record lows, in a dovish signal that analysts say marks a major shift in the bank's approach to guiding market expectations.

The Reserve Bank of Australia (RBA) has reduced interest rates twice since June to an all-time low 1% to revive growth and inflation. Financial markets are pricing in a real chance of a third cut before Christmas.

In a speech on Thursday, RBA Governor Philip Lowe said the RBA was prepared to provide additional policy stimulus if needed.

"On current projections, it will be some time before inflation is comfortably back within the target range," Lowe said in Sydney. "Whether or not further monetary easing is needed, it is reasonable to expect an extended period of low interest rates."

The RBA is traditionally seen as reluctant to commit to long-term guidance on policy so Lowe's reference to an "extended period" was seen as a dovish concession to markets.

The more explicit-than-usual comments on rates were also seen as borrowing from the lexicon of other central banks, which use such language to guide market rates.

"This is a form of forward guidance, which the European and the Americans have used in various points of time," AMP Chief Economist Shane Oliver.

"They are saying 'we won't even think about raising rates', which gives you an impression interest rates would be low for a long time."

In responding to questions after the speech, Lowe said he was not shifting toward forward guidance but was instead being "as transparent as possible".

The promise of lower for longer rates sent yields on 10-year government bonds (AU10YT=RR) to a record low of 1.237%, compared with around 2.5% at the start of the year. The local dollar eased to a two-week trough of $0.6965.

"The important thing for markets was that Lowe was still retaining his easing bias," said David Bassanese, chief economist at BetaShares and an Economic Advisor to the National Institute for Economic and Industry Research.

"After the July board meeting, there was some debate as to whether they have paused on easing...Based on the RBA's forecasts they don't need to cut again but the risk is that their forecasts end up being optimistic. They have tended to be more on the optimistic side than how things have been playing out."

The RBA in May cut its growth forecast for the country's A$1.9 trillion economy to under 3% this year from previous projection of "a little above" 3%.

Long-term expectations for inflation were also revised lower such that it is not seen returning to the mid-point of the RBA's 2-3% target band through to mid-2021.

Inflation has already undershot that range for more than three years now but Lowe sounded confident on Thursday the target was still achievable.

Lowe was speaking on "Inflation Targeting and Economic Welfare" amid speculation in local media and academia over whether the target should be lowered.

Earlier on Thursday, the Australian Financial Review reported Treasurer Josh Frydenberg was reviewing the target and assessing the government's monetary policy mandate for the central bank, which sets the guidelines for its actions on interest rates.

Lowe made it clear that the target was still appropriate and has "stood the test of time". In responding to questions after his speech, he said he was confident the target would stay.

"We are not inflation nutters. Rather, we are seeking to deliver low and stable inflation in a way that maximizes the welfare of our society," Lowe said in the speech.

"The (RBA) Board is strongly committed to making sure we get there and continuing to deliver an average rate of inflation of between 2 and 3%," he added.

The RBA will publish its latest quarterly forecast on Aug. 9. On the same day, Lowe makes a semi-annual appearance before the government's economics committee where he'll be grilled by lawmakers.

Australia's central bank government says 'reasonable' to expect lower rates for longer
 

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.
  • Any comment you publish, together with your investing.com profile, will be public on investing.com and may be indexed and available through third party search engines, such as Google.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email