New RBA governor Philip Lowe says more interest rate cuts needed to battle low inflation

It would be another round of balancing the interest of depositors and shareholders that Australian banks would need to go through as new Reserve Bank of Australia (RBA) Governor Philip Lowe did not rule out another round of interest rate cuts. But for now, a third key lending rate reduction is far-fetched because the Australian central bank needs to guard against inflation expectations falling too far.

Lowe stresses the first two interest rate cuts in 2016 under his predecessor, Glenn Stevens, was not done to address concerns about economic growth. He points out that growth outcomes over the past year, measured by real GDP or trend in unemployment, were a bit better than expected.

Current headline inflation rate is 1 percent, much lower than the bank’s medium-term target of 2 to 3 percent. Lowe sees inflation rate picking up over the next 24 months, but it should be closer to 2 percent than 3 percent.

In a conference on Tuesday morning with Citi fund managers, Lowe says he is the first RBA governor to have headed the country’s central bank where the day’s concern was inflation could be too low instead of being too high, Sydney Morning Herald reports.

Because of the low unemployment rate and unusually low wage growth, it means the RBA has room to reduce interest rates without breaching the top of the RBA’s inflation target, Lowe explains. But he adds that despite recent factors have led to weak inflationary pressures expected to continue for a while yet, Lowe stresses, “this does not mean that we have drifted into a world of permanently lower inflation in Australia,” quotes Business Insider Australia.