Reserve Bank of Australia Governor Philip Lowe repeated that the possibility of lower interest rates remains on the table.
“It is not unrealistic to expect a further reduction in the cash rate as the Board seeks to wind back spare capacity in the economy and deliver inflation outcomes in line with the medium-term target,” Lowe said at an event in Adelaide on Thursday.
Earlier this month, the bank had lowered the key rate for the first time since August 2016. The rate was reduced by a quarter point rate to 1.25 percent.
The June rate cut was not in response to the deterioration in the economic outlook since the previous update published in early May. “Rather, it reflected a judgment that we could do better than the path we looked to be on,” governor said.
Lowe said the decision will support employment growth and inflation consistent with the target. However, the banker noted that it would be unrealistic to expect that lowering the rate by 25 basis points would materially shift the path of economy.
Lowe observed that monetary policy is not the only option as it has limitations. Fiscal policy is another option to get closer to full employment. Structural policies support firms expanding, investing, innovating and employing people.
He concluded that both fiscal and structural policies need to be kept in mind as the various arms of public policy seek to maximize the economic prosperity of the people of Australia.
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