Don’t expect “unusually low” interest rates:RBA chief

Australians should not expect “unusually low” interest rates, the Reserve Bank Governor,
Glenn Stevens, says.

Speaking in  Toowoomba, Mr Stevens admitted that the Australian economy had recovered from the global economic crisis faster than his bank had forecast.

He delivered a detailed account of that recovery, then said:” Given all of the above, one would not expect the setting of interest rates to be unusually low.

“If the economy is growing close to trend, and inflation is close to target, one would expect interest rates to be pretty close to average.

“The Reserve Bank has moved early to raise the cash rate to levels that deliver interest rates for borrowers and depositors more like those that have been the average experience over the past 10 to 12 years.

“Those interest rates are now pretty close to that average,” Mr Stevens said.

The RBA’s marker interest rate is now 4.25 per cent and the bank, itself, has signalled that this rate might be raised to 4.5 or even 5 per cent, quite soon.

Mr Stevens also explained the task he believes the bank now has before it.

‘Our task…. is now to manage a new economic upswing.

“This will be just as challenging, in its own way, as managing the downturn.

“But it’s a challenge plenty of other countries would like to have,” Mr Stevens said.

He admitted, though, that some areas of retail sales in Australia have been “quite soft.”

However Mr Stevens said the outlook for resource driven investment in Australia is quite strong.

And he said investment, both public and private, is likely to drive demand to a greater extent in future than it had in the past.

“Even before the downturn, the relative share of consumer spending in total demand was tending to diminish and that of investment spending to increase,” Mr Stevens said.