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Economy quietly hints at positive news: RBA

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Australia’s economy may have reached a “gentle turning point” on the back of lower interest rates and recent tax cuts, Reserve Bank of Australia Governor Philip Lowe says.

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The depreciation of the Australian dollar, a brighter outlook for mining investment and some stabilisation in the housing market have also been helpful, Dr Lowe has told a hearing in Canberra.

“There are signs the economy may have reached a gentle turning point,” he told the federal parliament’s economics committee on Friday.

“Consistent with this, we are expecting the quarterly GDP growth outcomes to strengthen gradually after a run of disappointing numbers.”

The optimistic sentiment comes despite the central bank this week revising down its growth forecast for 2019, from 2.75 per cent to 2.5 per cent.

Dr Lowe said this shift mainly reflects Australians spending less, amid slow growth in their wages and recent house price falls.

“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.”

But the positive contributors to the future, including tax cuts and low interest rates, mean the RBA’s growth forecast for 2020 remains unchanged at 2.75 per cent.

“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 Reserve Bank held the cash rate at a record low 1.0 per cent on Tuesday, after reducing the rate by 0.25 per cent in both June and July.

Dr Lowe said the possibility of lower interest rates remains on the table while inflation is well below the RBA’s target band and there is slack in the jobs market.

“The board is prepared to ease monetary policy further if there is additional accumulation of evidence that this is needed to achieve our goals of full employment and inflation consistent with the target.”

But the governor reiterated his belief that monetary policy is not the only avenue for stimulating the economy.

“Monetary policy certainly can help, and it is helping, but there are certain downsides from relying too much on monetary policy,” he said.

Other options include fiscal support, such as extra spending on infrastructure, and structural policies that help businesses grow.

“We will all do better if Australia is viewed as a great place to expand, invest, innovate and employ people,” he said.

“A program of structural reform would help move us in this direction.”

Structural reforms would also boost productivity, which has slowed “noticeably” in recent times.

“If this slowing is maintained, it will become a serious issue and as a society we will have to make some difficult adjustments.”

– AAP

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