RBA governor Philip Lowe just told Australian businesses it’s a good time to start spending

RBA governor Philip Lowe. Picture: Getty Images
  • Philip Lowe says it’s up to the RBA, government and business to help foster investment in Australia
  • He say stronger economic conditions in Australia should help support business investment
  • Lowe repeated that the next move in Australia interest rates is still likely to be up

Australian economic growth is likely to accelerate in the coming years, unemployment will probably fall and inflationary pressures will remain subdued, providing an ideal environment for Australian businesses to invest for the future.

That’s the overarching view to come from Philip Lowe’s speech to the AFR Business Summit in Sydney today, with the RBA governor suggesting that not only does the bank have a role in fostering investment, but also the government and business too.

“At the highest level we seek to be a source of stability and confidence,” Lowe said, referring to the RBA’s role in making businesses confident enough to invest.

“Having strong credible institutions in the country helps provide the community with a degree of confidence.

“We seek to build and maintain this credibility through developing a reputation for being a central bank that is transparent, independent, pragmatic and analytical.”

Lowe said to help improve Australia’s investment climate and maintain its credibility, it was key for the RBA to deliver on its core goals of monetary and financial stability.

Despite scepticism from some about the bank’s recent track record on those fronts given continued weakness in wage and inflationary pressures in the post-GFC era, Lowe told the audience that investors should have confidence the RBA will be able to deliver on its policy objectives.

“Our assessment is that the economy is moving in the right direction,” he says.

“We expect stronger growth in 2018 than in 2017 and a further reduction in the unemployment rate. We also expect inflation to increase a little from its current low rate.

“These developments should help support the climate for business investment.”

Keeping with the theme of recent commentary from bank, he said that the risk of sharply higher interest rates for businesses in the period ahead appears remote.

“The expected progress in reducing unemployment and having inflation return to target is likely to be only gradual,” he said. “With only gradual progress expected, the Board does not see a strong case for a near-term adjustment of monetary policy.”

With Lowe optimistic the RBA will be able to deliver an ideal environment for investment in the coming years, he called on both the government and businesses to do their part.

“The government certainly has an important role to play, but so does business,” Lowe said.

“A business culture that highly values innovation and competition and that is not afraid of taking risk will surely help in creating this positive environment.”

Lowe said Australia’s long record of economic and financial stability, geographic location in Asia and skilled, diverse and flexible workforce all act to make it an attractive place to invest.

However, given an increasingly competitive global environment, he said Australia should not just rely on what has helped the nation in the past.

“We can’t rest on these advantages,” he said. “It is a competitive world out there and the nature of comparative advantage is changing.”

To ensure Australia remains an attractive place to invest, Lowe said “innovation, creativity and ingenuity” was needed, suggesting it could come from investment in information technology and the skills of our labour force.

Lowe also weighed in on the debate on the need for corporate tax cuts given recent reductions in the United States, suggesting that lower tax rates were only one factor, along with the role of the RBA and business, to help foster greater levels of investment.

“This is an important discussion to have as Australia does need to remain an attractive place for global capital to invest,” he said.

“As we have this discussion, it is also important that we keep focused on the other issues… as these areas play an important role in building durable comparative advantage and prosperity.”

The full speech is found here.