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, 9 august 2019. * * * chair members of the committee thank you for this opportunity to share our views on the australian economy and the rba ’ s important public policy responsibilities. my colleagues and i strive for a high level of transparency and these hearings are an important part of the accountability process. later this morning, we will be releasing our quarterly statement on monetary policy, which will include our latest forecasts. i would like to begin today by highlighting the main points regarding the forecasts for output growth, the labour market and inflation. i will then turn to monetary policy. our central forecast is for the australian economy to expand by 2½ per cent this year and 2¾ per cent over 2020. the growth forecast for this year has been revised down since we met six months ago, but the forecast for next year is unchanged. the downward revision this year mainly reflects weak consumption growth. it has become increasingly clear that the extended period of unusually slow growth in household incomes has been weighing on household spending, as has the adjustment in the housing market. given this experience, the outlook for consumption continues to be the main domestic source of forecast uncertainty. even so, looking ahead, there are signs the economy may have reached a gentle turning point. consistent with this, we are expecting the quarterly gdp growth outcomes to strengthen gradually after a run of disappointing numbers. this outlook is supported by a number of developments including : lower interest rates, the recent tax cuts, a depreciation of the australian dollar, a brighter outlook for investment in the resources sector, some stabilisation of the housing market and ongoing high levels of investment in infrastructure. it is reasonable to expect that, together, these factors will see growth in the australian economy return to around its trend rate next year. the major uncertainty continues to be the trade and technology disputes between the united states and china. these disputes pose a significant risk to the global economy. not only are they disrupting trade flows, but they are also generating considerable uncertainty for many businesses around the world. worryingly, this uncertainty is leading to investment plans being postponed or reconsidered. it is also now generating volatility in financial markets and has increased the prospects of monetary easing in many countries. this means that we have a lot riding on these disputes being resolved.

that question, it ’ s worth noting that over the course of 2014 and 2015, effective rates on most loans tended to decline by more than the cash rate, reflecting both declining funding costs and increased competition to lend. for fixed rate mortgages and many business loan rates the fall was quite marked. the average rate on outstanding business loans, for example, fell by over 90 basis points during a period in which the cash rate fell by 50 basis points. even for floating rate mortgages, rates had fallen a bit more than the cash rate. the actions of those banks that have lifted mortgage rates over recent weeks reverse a little under half of this year ’ s decline for floating rate mortgages for owner - occupiers and have no effect, at this stage, on the 15 per cent of loans with fixed rates. for investors in housing, these actions and those a month or two earlier reverse the effects of this year ’ s monetary policy easing but, of course, this was the lending that had been growing most quickly. business loan rates have not risen. measuring across the total loan book, the recent actions are the equivalent of roughly half of one 25 basis point monetary policy change. they take back perhaps a quarter of the extent of interest rate easing seen since the start of this year, and a smaller proportion of the total easing in lending costs seen over the past two years. for mortgages, this increase is from the lowest rates that any current borrower will have ever seen. as it is, there are still a number of mortgage products with rates not much above 4 per cent, even a few advertising a “ 3 ” before the decimal point. we also note that a significant proportion of owner occupier households is ahead of schedule on mortgage repayments – in large part because these households did not lower their payments as interest rates fell. most of these households are unlikely to need to part with extra cash each month as a result of the recent interest rate changes. ( equally, many of these households were probably not boosting spending as interest rates fell, instead allowing their loan principal to fall faster. ) as for the general environment, according to business surveys conditions outside mining have been slowly improving, not deteriorating. so it is not as though the increases in mortgage rates are compounding the effects of a serious deterioration in economic conditions overall. could the “ shock ” value of the rises in mortgage rates itself lead to a significant change in that trend, gentle as it is, of improvement? while