philip lowe : opening statement to the house of representatives standing committee on economics opening statement by mr philip lowe, governor of the reserve bank of australia, to the house of representatives standing committee on economics, canberra, 7 february 2020. * * * good morning chair and members of the committee. these hearings are a central part of the accountability process for the reserve bank of australia. as usual, my colleagues and i will do our best to answer your questions and to explain how we are discharging our important responsibilities on behalf of the australian community. later this morning we will be releasing a full set of updated forecasts in our quarterly statement on monetary policy. ahead of that i would like to highlight the main numbers and some of the factors that are influencing the outlook. i will then turn to monetary policy and finish with some remarks about the rba ’ s payments system responsibilities. when we met six months ago, i said that there were signs that the australian economy may have reached a gentle turning point. the data that we have received since then are consistent with this. our central forecast is that economic growth in australia 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 expected pick - up in growth is supported by accommodative monetary policy, a new expansion phase in the resources sector, stronger consumer spending and a recovery in dwelling investment later this year. high levels of spending on infrastructure and strong growth in public demand are also helping the economy. the outlook is also supported by an expected modest lift in global growth. the global economy has clearly suffered over the past year from the uncertainty and interruption to international trade caused by the us – china trade and technology disputes. more recently, though, there have been signs of stabilisation, especially in the manufacturing sector. consistent with this, in its latest public forecasts the international monetary fund has predicted global growth will be stronger this year and next than it was last year. notwithstanding this, there are still some significant areas of uncertainty. one of these is the possibility of a re - escalation of the us – china disputes. the ‘ phase one ’ deal has alleviated some of the earlier uncertainties, but it has not eliminated them. there are also a number of other trade disputes that are simmering elsewhere around the world. and more recently, the outbreak of the coronavirus represents a new source of uncertainty. it is too early to tell

are 2 / 4 bis central bankers'speeches bringing forward the day when households feel sufficiently comfortable to increase their spending again. the easing of monetary policy is also supporting a turnaround in housing investment and has also had an effect on the exchange rate, which boosts demand for our exports. so, it is working. looking forward, we are expecting progress to be made towards the inflation target and full employment, but that progress is expected to be only gradual and there are uncertainties. given the only gradual nature of the progress, the board has been discussing the case for a further easing of monetary policy in an effort to speed the pace of progress and to make it more assured. in considering this case, we have taken account of the fact that interest rates have already been reduced to a low level and there are long and variable lags in the transmission of monetary policy. the board also recognises that a balance needs to be struck between the benefits of lower interest rates and the risks associated with having interest rates at very low levels. internationally, there are increasing concerns about the effect of very low interest rates on resource allocation in the economy and their effect on the confidence of some people. 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. after considering this balance, the board decided to maintain the cash rate unchanged. we recognise, though, that the nature of this balance between benefits and risks can change over time and it is dependent upon the state of the economy. if the unemployment rate were to be moving materially in the wrong direction and there was no further progress being made towards the inflation target, the balance of arguments would tilt towards a further easing of monetary policy. so we are continuing to watch the labour market carefully, as we seek to strike the right balance in the interests of the community as a whole. while on the topic of interest rates, i would like to draw your attention to some new analysis of lending rates that will be included in today ’ s statement on monetary policy and updated each month on the rba website. 1 in particular, the newly published data show that households that took out their mortgage four or five years ago are paying noticeably higher interest rates than those who took out their mortgage more recently. this reflects the fact that the discounts offered to lenders ’ standard variable rates