But the minutes of this month’s meeting show that board members discussed the impact of low interest rates on the country’s financial and economic stability, as borrowers cornered by levels. higher mortgage debt.
They recognized the risks inherent in investors seeking yield in a low interest rate environment, including the risks associated with rising debt and asset prices, particularly in the real estate market, according to the minutes.
The board concluded that there were greater benefits to financial stability from a stronger economy, while recognizing the importance of closely monitoring risks in asset markets.
ANZ Australian economics official David Plank said the comment suggested the bank hoped a stronger economy would offset any financial stability issues caused by rising asset prices.
At some point, we can see shifts in demand and supply of credit that will spur action, almost certainly in the form of macroprudential rather than monetary policy, but that seems far away, he said. declared.
Prior to the coronavirus pandemic, the RBA had cut interest rates to an all-time high of 0.75%, with the stated goal of lowering the unemployment rate to help raise wage growth and inflation.
But wage growth has since fallen to its lowest level on record. The RBA’s own forecast only shows wage growth at a historically low 2% by mid-2023.
The minutes show that board members expect it to take years for wage growth to approach a normal level.
Companies had reacted quickly in the early stages of the pandemic by delaying pay increases, imposing pay freezes and, in some cases, applying temporary pay cuts, according to the minutes.
Liaison contacts had suggested that it might be some time before the wage freeze is lifted.
Population growth, which is expected to slow to its lowest rate since World War I, is another headwind for the economy.
The minutes show the bank believes Australia’s economic output would fail to return to its pre-pandemic trajectory largely because of slowing population growth.
Lower population growth would continue to weigh on both aggregate demand and labor supply in the coming period, they say.
At its February meeting, the council decided to spend an additional $ 100 billion to buy federal and state government debt to keep downward pressure on interest rates.
The minutes suggest the bank will extend the program, which is due to end in November, in part because central banks around the world are pursuing their own debt buying strategies.
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Shane is senior economics correspondent for The Age and The Sydney Morning Herald.
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