Australia, insurance, car, home, live, holidays

RBA governor Philip Lowe has indicated there are more interest rate cuts to come while calling on a boost to infrastructure spending from governments.Credit:Peter Braig

He said there was"significant"underemployment and further room for more people to pick up work,which was hampering efforts to get wages growing and inflation to lift.

The RBA earlier this month sliced the official cash rate to 1.25 per cent,its lowest level on record,with Dr Lowe saying further cuts were likely.

"The most recent data – including the GDP and labour market data – do not suggest we are making any inroads into the economy's spare capacity. Given this,the possibility of lower interest rates remains on the table,"he said.

"It is not unrealistic to expect a further reduction in the cash rate as the[RBA] board seeks to wind back spare capacity in the economy and deliver inflation outcomes in line with the medium-term target."

But Dr Lowe said it was unrealistic to expect a modest cut in the cash rate to deliver a major boost to the economy and jobs market.

He said there were limitations to what low interest rates could achieve,urging governments of all persuasions to boost their own efforts.

"As a country,we should also be looking at other ways to get closer to full employment. One option is fiscal policy,including through spending on infrastructure,"he said.

"Another is structural policies that support firms expanding,investing,innovating and employing people. Both of these options need to be kept in mind as the various arms of public policy seek to
maximise the economic prosperity of the people of Australia."

Philip Lowe believes more infrastructure spending is needed,such as NSW's Westconnex project,if wages are to grow and unemployment to fall.Credit:Nick Moir

Dr Lowe said in a tight jobs market there should be"strong"wages growth or frequent job changing as businesses tried to find the workers they needed.

But with neither issue developing,the governor said thehigh level of mortgage debt by many Australians might be playing a part.

"One possible explanation for this is the uncertainty that many people feel about the future. This uncertainty means that if you have a job you want to keep it rather than take a risk with a new employer,"he said.

"This might be especially so if you also have a large mortgage. So it is possible that the high level of household debt is also affecting labour market dynamics."

Dr Lowe said there was also evidence that where businesses were facing a shortage of staff,in areas such as specialist IT,a lack of investment in training might be a factor.

He said almost 60 per cent of firms were reporting that a shortage of available labour was a minor or major constraint.

"One contributing factor here is an underinvestment in staff training. In the shadow
of the global financial crisis,many firms cut back training to reduce costs,"he said.

"We are now seeing some evidence of the adverse longer-term implications of this. As the
labour market tightens further,I would hope that more firms are prepared to hire workers and provide the necessary training."

License this article