Australia’s ongoing drought, the devastating effects of the bushfires, and the coronavirus effects on Australian exports are likely factors the Reserve Bank cites as “extending a slow patch” in the economy’s growth into early 2020.
The RBA’s central forecast is that Australia's economic growth will pick up from an average rate of 2 per cent over the past couple of years to 2¾ per cent this year and 3 per cent over 2021.
“This is a step up from the growth rates recorded over the previous two years,” RBA governor Philip Lowe said in his opening statement to the House of Representatives on Friday.
Don't be loyal to banks, 'shop around'...
Lowe said that further rate cuts would be on the agenda if the unemployment rate rises, and that “lower interest rates have allowed people to pay off their debts more quickly”.
“Lower interest rates could also encourage more borrowing by households eager to buy residential property at a time when housing debt is already quite high and there is already a strong upswing in housing prices in place. If so, this could increase the risk of problems down the track,” he said.
Newly published data reveals households that took out mortgages four-to- five years ago are paying “noticeably higher” interest rates than those who have taken out mortgages more recently.
This reflects the fact that discounts offered to lenders' standard variable rates have increased, these discounts tend to be fixed for the life of the loan – “so what might have once seemed a big discount might not be so big now,” Lowe added.
“As I have said a number of times recently, if you took your loan out a while ago it’s worth shopping around and checking in with your lender to see if it can now give you a bigger discount.”
Last year the RBA said quantitative easing would be considered only at a cash rate of 0.25 per cent, but it was a direction the central bank was “not inclined to go in”.
Touching on negative interest rates, Lowe described this as “extraordinary unlikely”.
“Australia's financial markets are currently operating normally so there is no need for any special liquidity operations,” he said.
Lowe said the central bank would only consider QE if it looked unlikely to achieve the RBA’s goal of full employment and the inflation target.
“In the event that the country did find itself in that position, I would hope that policy options other than monetary policy were also on the country's agenda.”
In line with the expected pick-up in GDP growth, the RBA expects employment growth to gradually increase.
The unemployment rate declined through the December quarter, to 5.1 per cent for the month.
Unemployment is forecast to remain in the 5–5¼ per cent range before declining to around 4¾ per cent in 2021.