The Reserve Bank is treading a fine line between stimulating the economy without causing potentially damaging imbalances, a senior central bank official says. RBA deputy governor Philip Lowe said low interest rates were helping to wean Australia off dependence on the mining investment boom by supporting spending. In time, consumer spending growth and a further pickup in housing construction should lead to higher business investment, he said.
‘It is, however, unlikely to be in Australia’s long-term interests to engineer a consumption boom by encouraging people to borrow large amounts against future income,’ Dr Lowe said in a speech in Sydney on Monday. ‘This is especially so when debt levels are already high and prospects for future income growth are not as positive as they once were.’
Dr Lowe said this meant there was a ‘fine line’ for the RBA to tread as it tried to foster consumer spending and business investment, but without creating the type of imbalances ‘that could cause problems later on’. ‘We will continue to assess that balance carefully,’ he said.