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The RBA will not rush into any further cash rate reductions without giving the most recent cuts time to take effect.
Speaking at the Australian Business Economists dinner last night, RBA governor Glenn Stevens commented that recent rate cuts would reduce the household sector’s debt burden by close to three per cent – a significant amount for just a few months.
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“This is roughly equal to that seen in the early 1990s, when the cash rate fell from 18 per cent to 4.75 per cent. But on that occasion it took two and a half years,” he said.
“These are quite big changes. They will take time to have their full effect”.
While Mr Stevens emphasised the importance of remembering “the extent of stimulus that is still in the pipeline” he said there was scope to do more with macroeconomic policy if needed given the strength of the national accounts and the outlook for declining inflation.
Australia had a “very difficult period to negotiate” he said, “but we can negotiate it”.
