HONG KONG (Reuters Breakingviews) - The Australian central bank has room for policy manoeuvre that would be the envy of other countries. Governor Philip Lowe can still cut the key policy interest rate twice to help a slowing economy before he has to resort to buying assets as some of his peers have been doing for years. But the Reserve Bank of Australia has good reasons to take it slowly.
The RBA has cut rates three times since June, to a record low 0.75%. But that has so far done little more than revive housing prices. Unemployment rose to 5.3% in October after a promising dip in September, employment saw its sharpest fall in three years and consumer confidence is low. Lowe has said unconventional measures, such as bond purchases, might be an option once policy rates fall to 0.25%, but not before. Given the economy is slowing but not crashing, he can afford to take his time getting there.
Like many central bankers, Lowe wants the government to do more to help the economy. But Prime Minister Scott Morrison has so far made few concessions. A plan to fast-track A$3.8 billion ($2.6 billion) of spending is welcome, but only A$1.8 billion, or roughly 0.1% of GDP, will be spent in the next 18 months. And the government still expects to run a budget surplus in 2019/2020.
Fiscal foot-dragging has partly been possible because the central bank has been doing the hard work. Yet the government controls the levers that can make a real difference now. Infrastructure spending may take time to filter through to the economy. But Canberra could, for example, offer corporate tax concessions that are conditional on higher salaries and act as soon as a mid-year budget review due this month.
The central bank may worry that failure to ease policy soon enough would be a dereliction of its duties. But Lowe also has reasons to fret about being forced to embrace less conventional monetary policies. Central bankers, notably in the euro zone, have found it easier to begin asset purchases than to stop. Their experience will make the RBA wary of speeding too quickly down the same road.
Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.
Sign up for a free trial of our full service at https://www.breakingviews.com/trial and follow us on Twitter @Breakingviews and at www.breakingviews.com. All opinions expressed are those of the authors.