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RBA governor Philip Lowe grilled on low interest rates

RBA governor Philip Lowe grills on interest rates. Source: Reuters

Earlier this week, the Reserve Bank of Australia decided to hold rates at a record low of 1.0 per cent.

The pause in cutting will allow RBA governor, Philip Lowe, time to see how the previous cuts will impact the economy, experts said.

Today, Lowe has faced the Economics Committee’s inquiry about the risk of ultra-low interest rates fuelling higher household debt, and the bank’s rationale behind keeping rates so low.

During the inquiry, Lowe revealed Australian retirees weren’t happy with the low rates, and had sent letters to the governor complaining that cuts to the cash rates were eating away at the modest amounts of money they make from the interest on their bank deposits.

"I acknowledge that lower interest rates hurt the finances of the many Australians who rely on interest payments and the board has paid close attention to this issue," Lowe said in his opening statement.

"It's not uncommon for people to say to me they've worked hard all their lives, they've saved, they're frugal, they don't spend very much and they rely on interest income and they have to cut back their spending.”

But, Lowe said the bank’s responsibility was to the national interest.

"Lower interest rates do support the overall economy and if more people have jobs and income growth is stronger, we'll all benefit, even though the distribution of those benefits is not even,” Lowe said.

According to Lowe, economic risks were more to the downside in the near future, but that cuts in the cash rate and the federal government's tax offsets should help stimulate household consumption over the medium term.

But the RBA said leading indicators such as job vacancies and firms' hiring intentions hinted the nation's unemployment rate will remain at 5.2 per cent "for some time".

"Uncertainty is clouding how much any increase in labour demand will be met by unemployed workers finding jobs, existing employees working more hours or a further increase in the participation rate," the RBA said.

With AAP

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