RBA’s Kent Says Monetary Policy Working, Faces Headwinds

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Australian monetary policy is helping to support the economy despite limited assistance from other sources of demand, central bank Assistant Governor Christopher Kent said.

The Reserve Bank of Australia has had to shoulder the load of supporting growth with record-low 2 percent interest rates as the nation’s currency remains elevated, the government restricts spending and a mining investment bonanza unwinds.

Policy “is working against some strong headwinds,” Kent said in the text of a speech Monday in Canberra. “Consumption growth has picked up since 2013. But it is still a little weaker than suggested by historical experience.”

Australia is struggling to kickstart investment outside of the resources industry and the economy is on track for the longest stretch of below-average growth since the last recession in the early 1990s. The RBA has been frustrated that its loose policy, which is fueling housing construction, hasn’t weakened the local dollar sufficiently to boost the competitiveness of local firms.

The exchange rate “continues to offer less assistance than would normally be expected in achieving balanced growth in the economy,” Kent said.

Asked later by an audience member if the central bank could ever lower interest rates to zero, Kent said such a move wasn’t too likely but you can never say never.

Australia’s wage growth slowed to the weakest pace on record last quarter. Kent said this may be encouraging some indebted households “to pay down their debts faster than has been the norm, perhaps in response to weaker prospects for income growth.”

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