June 4, 2019 / 9:40 AM / in 21 days

Australia central bank chief says rates could go even lower

SYDNEY (Reuters) - Australia’s top central banker said on Tuesday its cash rate could move further down, only hours after it eased policy to an all-time trough in an effort to reduce unemployment and stoke inflation.

Reserve Bank of Australia Governor Philip Lowe (2nd L) speaks at a parliamentary committee hearing as he sits next to Deputy Governor Guy Debelle (L) in Sydney, Australia February 22, 2019. REUTERS/Tom Westbrook

Reserve Bank of Australia (RBA) Governor Philip Lowe also highlighted the need for fiscal stimulus to help boost jobs and growth.

The RBA lowered the cash rate for the first time in nearly three years to 1.25% ahead of first-quarter data due Wednesday which is likely to show the A$1.9 trillion ($1.33 trillion) economy hit its weakest annual growth in a decade.

Commenting on the prospects for further policy easing in a speech in Sydney, Lowe said it’s not “unreasonable to expect a lower cash rate.”

“It is possible that the current policy settings will be enough – that we just need to be patient. But it is also possible that the current policy settings will leave us short,” he added.

“Given this, the possibility of lower interest rates remains on the table.”

Two of Australia’s four major banks - Commonwealth Bank of Australia and National Australia Bank - immediately announced they would fully pass on the cut to their customers from later this month.

ANZ Banking Group said it would lower variable mortgage rates by only 18 basis points. Westpac was yet to make a decision.

Lowe took the unusual step of openly urging Australia’s banks to pass on the RBA cut in full, citing a recent reduction in their funding costs.

However, he said there were “certain downsides” from relying just on monetary policy to stimulate the economy, calling on the government to do its part.

“As a country, we should also be looking at other options to reduce unemployment,” he said.

“One option is for fiscal support, including through spending on infrastructure,” Lowe said.

“Another option is structural policies that support firms expanding, investing, innovating and employing people.”

Reporting by Swati Pandey; Editing by Shri Navaratnam

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