Philip Lowe, deputy governor of the Reserve Bank, in his speech to the Committee for Economic Development of Australia covered the three themes which he says the RBA has endeavoured to communicate in the last few years:
- Australia’s economy is in a transition from the biggest resources boom in over a century to something a bit more normal. The transition presents challenges which are being compounded by what is happening offshore.
- A reasonably successful transition is probable. The Australian economy’s flexibility helped Australia deal with the upswing of the resources boom and is now helping us deal with the downswing. He made references to floating exchange rate, labour market supply in terms of increases and decreases in immigration and subdued wages growth.
- Monetary policy is helping this adjustment. He said, “It is entirely appropriate that, during a period in which both the terms of trade and mining investment are declining, monetary policy is accommodative.” However, the likelihood of a successful transition would be boosted by a lift in productivity growth and an increase in the risk-adjusted returns on investment. “The missing ingredient continues to be a lift in non-mining business investment, where we are still waiting for convincing signs of a pick-up…. but a material lift in non-mining business investment still seems to be some way away.”
This last statement could be construed as a hint as to the likely trigger for the RBA to begin the rate raising cycle. Though, it is clear from his statement, such a move is “some way away.”