Reserve Bank of Australia governor Philip Lowe says the next move in the cash rate will be up.
And he has warned that after so many years of low rates, it will come as a shock to some households.
In a speech given in Perth last night, Dr Lowe said that people should remember that as the economy improves, interest rates will lift.
“The last increase in the cash rate was more than seven years ago, so an increase will come as a shock to some people,” Dr Lowe said.
“But it is worth remembering that the most likely scenario in which interest rates are increasing is one in which the economy is strengthening and income growth is also picking up.”
At the same time, this was unlikely to happen any time soon. He said the RBA board does not see a strong for any near term adjustment in its monetary policy as progress was gradual.
“It is still some time before we are likely to be at conventional estimates of full employment. And, given the structural forces also at work, we expect the pick-up in wages growth and inflation to be only gradual,” Dr Lowe said.
Australia’s interest rates have been at 1.5 per cent since August 2016. And most economists are not move in interest rates until 2019 or even 2020.
“While some other central banks are raising their policy rates, we need to keep in mind that their economic circumstances are different and that they have had lower policy rates than us over the past decade,” he said.