Household debt in Australia is at a record high and it is not in the public interest to encourage further borrowing, central bank Governor Philip Lowe said on Tuesday, in another sign that the bank might be done cutting interest rates for now.
The Reserve Bank of Australia (RBA) left interest rates at a record low of 1.5 percent at its policy meeting this month, sounding optimistic about the economy and more confident that inflation would pick up.
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“There remain reasonable prospects that inflation will return to around average levels over the next couple of years,” Lowe said at a business dinner in Melbourne. Lowe spoke about challenges to the outlook and managing them, while adding that the RBA’s central scenario for the A$1.6 trillion economy was a “relatively positive one.” Rising household debt, equivalent to 185 percent of annual disposable income, needed a close watch.
“It is important that we avoid a build-up of financial imbalances in household balance sheets,” Lowe said. “It is unlikely to be in the public interest, given current projections for the economy, to encourage a noticeable rise in household indebtedness, even if doing so might encourage slightly faster consumption growth in the short term.”
Analysts have long suspected the RBA would be loathe to cut rates again to avoid fuelling yet more borrowing. Futures markets <0#YIB:> imply only a 12 percent chance of another policy easing by mid-2017. In his speech, Lowe also emphasised the need for stronger public finances but added that budget repair should not come at the expense of infrastructure spending.
Earlier, the International Monetary Fund said Australia’s government should consider slowing its path to a balanced budget and instead spend more on growth boosting infrastructure projects. Since the global financial crisis, the budget has been in deficit with net debt seen expanding to 19.2 percent of gross domestic product by 2017/18. A balanced budged is not expected until 2020/21.
For all the latest India News, download Indian Express App nowFirst Published on: November 15, 2016 2:11 pm