Interest rates are expected to remain at record-low levels for at least three years, Australia’s leaders have been told.
Reserve Bank governor Philip Lowe told a meeting of the national cabinet on Friday that the cash rate, which is at 0.25 per cent, could be expected to remain at that level for “at least three years if not more”, Prime Minister Scott Morrison told reporters.
He said Dr Lowe had also told the meeting that financial markets were performing well.
Mr Morrison said the biggest economic challenge facing the country was unemployment, which was expected to remain at more than seven per cent for the next two years.
“Jobs is the number one economic issue,” Mr Morrison said.
To address this, the federal and state governments would focus on three areas: income support, infrastructure and red tape reduction for business.
The prime minister said the RBA governor had told national cabinet the states should lift their fiscal investment over the next two years “to the tune of two per cent of GDP or $40 billion over the next two years”.
The states and territories are pumping $48 billion, or 2.4 per cent of GDP, into major projects.
“This needs to be done in a co-ordinated way … in a careful and purposeful way,” Mr Morrison said.
Dr Lowe told the meeting the debt required to fund the $40 billion in new spending could be absorbed by the states and territories.
Mr Morrison said he wanted to see some of the spending done in regional areas, alongside local governments.
Meanwhile, retail sales rose 3.3 per cent in July, lifting 12.2 per cent over the year despite the impact of the Victorian lockdown.
The preliminary figures released by the Australian Bureau of Statistics showed the largest chunk of the rise occurring in sales of furniture and white goods.
There has also been a strong rise in food retailing, driven in part by coronavirus stockpiling in Victoria.
Ben Udy, from Capital Economics, said while retail sales were likely to show a fall in August the latest figures showed consumers were taking the second virus wave in their stride.
“While many forecasters expect a stagnation in third quarter GDP or even a further fall, we expect GDP growth to turn positive,” Mr Udy said.