Monetary policy supporting demand
(17 June 2015 – Australia) Monetary policy is on the right track to support demand, despite slow economic growth, according to Reserve Bank of Australia (RBA) assistant governor for economics, Christopher Kent.
At the Australian National University on 15 June, Kent said that although they were working against some strong headwinds, monetary policy was “clearly working” to support demand.
Significant declines in mining investment and fiscal consolidation by state and federal governments has contributed to the country’s economic growth slowing to an annual pace of 2.3 percent.
The RBA official cash rate is at a record low of 2 percent.
The exchange rate too "continues to offer less assistance than would normally be expected in achieving balanced growth in the economy", Dr Kent said.
He said home construction is growing strongly in response to low interest rates and is making some contribution to growth and jobs.
However, he warned that in parts of the country, any further substantial increases in residential construction might run up against some supply constraints "putting further upward pressure on housing prices".
"As the bank has noted for some time now, large increases of housing prices, if accompanied by strong growth of credit and a relaxation of lending standards, are a potential risk for economic stability," Dr Kent said.
This is the reason the central bank has turned to other regulators in the country to assess and contain such risks that may arise from the housing market.
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