Treasurer lauds economy as rate cut looms

Marnie Banger and Angus Livingston
(Australian Associated Press)


Treasurer Josh Frydenberg says the federal government will do what it takes to keep the Australian economy humming, as the Reserve Bank appears likely to cut the official interest rate.

RBA Governor Philip Lowe says the central bank will consider cutting the rate at its board meeting in two weeks, in hopes of reducing unemployment and buoying inflation.

“A lower cash rate would support employment growth and bring forward the time when inflation is consistent with the target,” Dr Lowe said in a speech to the Economic Society of Australia on Tuesday.

Unemployment edged up to 5.2 per cent in April, while inflation was zero in the March quarter and 1.3 per cent over the previous 12 months.

That’s below the RBA’s target of between two and three per cent on average.

The cash rate has been at a record low of 1.5 per cent since August 2016.

Asked what government policies could help the central bank hit its unemployment and inflation targets, Dr Lowe said an easing of monetary policy could be useful, as could more infrastructure spending.

“I would be advising all governments, not just the federal government but state governments, to make sure that they are investing in infrastructure that creates jobs and increases supply capacity.”

Fresh from a meeting with Treasury secretary Philip Gaetjens on Tuesday on the back of the coalition’s election victory, Mr Frydenberg said it remains clear the Australian economy is facing headwinds.

The rising trade tensions between China and the US continue to pose a challenge, along with local floods, droughts and the slowdown of Australia’s housing market.

But heading into the coalition’s third term, Mr Frydenberg is confident the economy’s fundamentals remain sound.

The government’s promised tax relief will help keep it that way, he stressed, along with $100 billion worth of road and rail spending over the next decade and the creation of new apprenticeships.

“Infrastructure spending is absolutely critical,” the treasurer told reporters in Canberra.

“We will take all the action that is needed to ensure the Australian economy remains strong.”

Key Morrison government adviser Arthur Sinodinos believes the economy will rebound with the coalition in power, pointing to a huge jump on the stock market on Monday.

“The fact the government has been returned has reflected in the stock market already, which I think gained about $33 billion in market capitalisation yesterday,” Senator Sinodinos told Sky News on Tuesday.

“The return to government has actually increased business confidence, and I think that’s going to be good for business investment.”

The NSW Liberal senator said he expected the economy would get some stimulus when income tax cuts flow through, hopefully pushing up the weakening consumption growth predictions.

Internationally, he said Australia has to increase efforts to get other countries to stick to the international trade system.

“(We should) encourage the US in particular to more fully embrace the rules-based order, because that’s the best guarantee we’ve got of heading off some of those global headwinds,” he said.


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