Dr Lowe said a “gentle turning point” had been reached in the economy, due in part to the amount of stimulus.
“The central scenario is for the Australian economy to grow by around 2.25 per cent this year and then for growth gradually to pick up to around 3 per cent in 2021,” he said. “The low level of interest rates, recent tax cuts, ongoing spending on infrastructure, the upswing in housing prices in some markets and a brighter outlook for the resources sector should all support growth.”
When the RBA started cutting rates earlier this year, it signalled it believed unemployment had to fall to at least 4.5 per cent to put upward pressure on wages and inflation. Dr Lowe on Tuesday said the jobs market was still the bank’s main focus.
“Wages growth remains subdued and is expected to remain at around its current rate for some time yet,” he said. “A further gradual lift in wages growth would be a welcome development and is needed for inflation to be sustainably within the 2-3 per cent target range. Taken together, recent outcomes suggest that the Australian economy can sustain lower rates of unemployment and underemployment.”
Dr Lowe reiterated his view the country would have an “extended period” of low interest rates so that the jobless rate could fall. He said the bank was prepared to cut rates further if needed to boost growth and drive down the unemployment rate.
CoreLogic research director Tim Lawless said there were positive signs to justify the RBA’s move.
Recent outcomes suggest that the Australian economy can sustain lower rates of unemployment and underemployment.
RBA governor Philip Lowe
“The decision to keep rates on hold was supported by the latest labour market and inflation readings, which saw the national unemployment rate nudge lower, while annual headline inflation edged slightly higher,” he said.
“Additionally, a rebound in housing values and a rise in buyer activity will hopefully begin to flow through to a gradual improvement in household wealth and spending.”