Reserve Bank of Australia Governor Philip Lowe:

  • Says policy balancing risks of low inflation vs high household debt
  • Does not see much risk of inflation expectations becoming unanchored
  • Does see risk that encouraging more borrowing would lead to consumer downturn
  • Households coping reasonably well with high debt, but is affecting spending
  • Would be case for quicker return to inflation target if unemployment were high and rising
  • Says, to date, satisfied that labour market heading in right direction
  • Says liaison suggests wages growth has bottomed, but a pick up is not imminent
  • Downturn in mining investment 90 pct done, non-mining investment still subdued
  • Repeats outlook is for 3 pct GDP growth next two years, gradual rise in inflation

Headlines via Reuters, bolding is mine

The 'is high household debt impacting on consumer spending?' question has been on the boil at the RBA for a good while now, and its been brought to the fore by the mining investment capex downturn and the subsequent very slow 'transition' in the economy to other sources of growth. This is the clearest expression of the concern I've seen from the RBA.

The implications for policy are unclear (at least to me). Other indications from the bank are that they are reasonably sanguine on employment (growing, but slowly) and inflation (low but the RBA expects it to pick up into the target band) ... and don't forget that these are the two 'mandates' of the bank. So the Bank is not unhappy. But, yeah, Lowe notes concerns in today's speech:

  • high household debt holding back consume spending
  • slow wage growth (Lowe refers specifically to this, again)
  • non-mining investment subdued

Full text of his speech is here: Australia and Canada - Shared Experiences

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Philip Lowe, Governor of the Reserve Bank of Australia, speaking on Australia and Canada - Shared Experiences, at the Australia-Canada Economic Leadership Forum, Sydney.

Recently from the RBA:

  • Post from the most recent monetary policy board meeting: The Statement accompanying the February decision
  • And, a few days later followed by the Statement on Monetary Policy (SoMP),
  • And yesterday we got the minutes of the February meeting