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RBA's Lowe says central bank seeks balance in monetary policy decisions

Published 05/17/2015, 07:36 PM
Updated 05/17/2015, 07:39 PM
© Reuters. RBA's Lowe says balance needed in policy

Investing.com - The Reserve Bank of Australia wants a prudent balance between the helpful effect of low interest rates and unintended side effects like a surge in property values, Deputy Governor Philip Lowe said Monday.

Lowe made the remarks to a Corporate Finance Forum.

The RBA currently holds its cash rate at a record low 2.0%, with the last cut of 25 basis points in May.

"The further reduction in the cash rate earlier this month will provide a bit more support and it will help reinforce some of the recent encouraging signs - particularly in household spending. In time stronger consumption growth and a continuation of the pick up in residential construction should lead to a lift in business investment," Lowe said.

"A lift in non-mining investment remains the critical ingredient to stronger growth in the overall economy and to a successful transition," Lowe said.

But the RBA doesn't want to engineer a boom by encouraging people to borrow large amounts against future income because debt levels are already high, Lowe said.

"So there is a fairly fine line to tread here. The RBA's recent decisions have sought to strike a prudent balance - to help encourage consumption growth and thus business investment but avoid the type of imbalances that could cause problems later on," Lowe said.

"We will continue to assess that balance carefully."

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