Credit boom unlikely to return but lower rates the new normal: Philip Lowe

The RBA will continue to maintain a low cash rate setting, according to RBA deputy governor Philip Lowe.

He says Australia now has lower interest rates than it otherwise would have to offset some of the effects of an uncomfortably high exchange rate and in an environment of slower credit growth and greater consumer caution.

But he said it was possible that “normal lending rates will be somewhat lower for a period owing to the combination of global factors and the legacy of the credit boom”.

These remarks where part of a speech delivered in Sydney overnight following the RBA cutting the cash rate to 3% and to its lowest level since the GFC.

Speaking on the topic of “What is normal?” Lowe highlighted how it was now much harder for the RBA to judge what an appropriate economic response was to rate cuts, but re-affirmed that the RBA continues to believe that monetary policy continued to keep inflation in check and have a positive impact on the economy.

“Monetary policy still looks like it is working,” Lowe said.

“There are lags and different parts of the economy respond differently, but lower interest rates are still effective in providing a boost to the overall economy.”

But he also provided numerous examples of how the economy has shifted since the GFC and that a new "normal" had emerged.

He said the Australian propensity to spend every dollar earned between the mid-1980s and into the 2000s (as house prices boomed) was not normal and that “more recently, the saving rate has increased and it is back to the level it was in the mid-1980s”.