We can’t be “too timid” about raising rates:RBA chief

The Reserve Bank Governor Glenn Stevens says the bank must not be “too timid” about raising interest rates, when that is necessary.

Mr Stevens made that unusually blunt observation, while addressing an academic breakfast in Perth today.

He said the bank had been prepared to cut rates very rapidly, after the collapse of Lehman Brothers late last year.

He said that if the bank was prepared to do that “but then (was) too timid to lessen that stimulus in a timely way when the threat passed, we would have a bias in our monetary framework.”

“Experience here and elsewhere counsels against that approach.”

But Mr Stevens added a caution.

“None of this is to say that the economy is, at the moment, too strong.

“It isn’t.

“The point is that the very low policy settings  were designed for a weaker economy than we are facing.

“Plainly, the downside risks to which the board was responding earlier have not materialised.”

Despite these cautious remarks, Mr Stevens’ speech will certainly increase speculation of another interest rate rise, probably of 25 basis points, when the bank’s board meets on the first Tuesday of next month.