Australia central bank upbeat on economy but in no hurry for rate hike

[SYDNEY] The "best course" of action for the Reserve Bank of Australia (RBA) is for the cash rate to stay at record lows for the time being, Governor Philip Lowe said on Wednesday, reiterating the next move will be up, not down.

In a speech in Sydney that homed in on a hot topic about the economic effects of rapid migration in Australia, Mr Lowe said a growing population has boosted infrastructure spending after years of underinvestment and has made the country younger.

He said it is one of the reasons for the RBA's optimism about the economy. Australia's population hit a record 25 million on Tuesday, almost a decade earlier than projected, largely led by overseas migrants including international students who stay back to live and work in the country.

But while the RBA expects economic growth to average above 3 per cent this year and next, it is not yet prepared to increase rates as it awaits a revival in inflation.

The RBA left rates at 1.50 per cent this week, marking two whole years with no move in interest rates - the longest policy pause in its modern history.

"The timing of any future change in interest rates is dependent upon the speed of the progress that is made in reducing the unemployment rate and having inflation return to around the midpoint of the target range on a sustained basis," Mr Lowe said in the speech.

"Given that progress...is expected to be only gradual, the Board does not see a strong case for a near-term adjustment in monetary policy."

The bank will issue updated economic forecasts this Friday and Lowe offered a taster on the outlook, noting that inflation will likely remain below 2 per cent this year due to declines in government-set prices.

The RBA sees inflation inching close to 2.5 per cent, the midpoint of its 2-3 per cent target, in 2020 while predicting a fall in the unemployment rate to 5 per cent "at some point over the next few years" from 5.4 per cent now.

REUTERS