Reserve Bank governor Philip Lowe’s optimistic economic outlook will come under scrutiny when he faces federal politicians on Friday.
Dr Lowe told the National Press Club this week that Australia’s fundamentals “remain very strong” and that the economy is “passing through a gentle turning point for the better”.
He also predicts the impact of the devastating bushfires and the coronavirus will be short lived, in contrast to Prime Minister Scott Morrison who expects the the virus alone will have a “significant impact”.
The governor will make his twice-a-year appearance before the House of Representatives economics committee in Canberra on Friday.
Surprisingly, the central bank is sticking to its forecasts made last November that economic growth will pick up to 2.75 per cent by the end of this year and accelerate further to three per cent by the end of 2021.
That would be a significant lift from the mere 1.7 per cent growth recorded in the year to September 2019 – the last official reading for the economy.
Dr Lowe expects a pick-up in world growth to help the Australian economy, along with a renewed expansion in mining investment and a rebound in consumer spending.
Economists are less optimistic with ANZ Bank forecasting a contraction in the economy in the March quarter because of devastating bushfires and the coronavirus.
Westpac economists also expect the economy to stall in the first three months of the year because of the deadly virus and by the end of 2020 to be limping along at just 1.9 per cent, well shy of what the Reserve Bank is expecting.
The Reserve Bank left the cash rate at a record low of 0.75 per cent at the first board meeting of the year this week, having reduced the rate three times last year.
Dr Lowe said it is possible interest rates could be cut again but hopes that doesn’t happen.
“The scenario on which we would be reducing interest rates is one where we are not making progress towards full employment and the inflation target,” he said.
However, Westpac expects another interest rate cut in April.
“Further policy accommodation will prove necessary when it becomes clear to the RBA that its current overly-optimistic expectations for growth and jobs are not being met,” the bank said in a note to clients on Thursday
Dr Lowe can also expect to be quizzed on his Press Club comments on whether fiscal policy can or should change so that government policy plays a greater role in stabilising the economy.
This is particularly the case with interest rates as low as they are.
“This discussion is taking place between the Reserve Bank and Treasury and in the international forums I go to with other central bank governors – it’s something we talk about a lot,” Dr Lowe said.