Why interest rates could remain low for years to come and JobKeeper should be extended

RBA Governor Philip Lowe addressed the COVID-19 Senate Select Committee on Thursday 28 May.

For the most part, the Governor, as seems to be his nature, gave a fairly positive outlook on Australia’s future.

To get the economy back to full employment, the RBA may have to keep interest rates where they are “for years”, he said.

That is certainly good news for mortgage holders and potential home buyers. With the property market now coming out of lockdown and open inspections and live auctions back on track, low interest rates could be one of the market’s key recovery planks.

If you are considering upsizing, downsizing or entering the property market, the current low interest rate environment is certainly an enticement and you can compare home loan interest rates here.

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Expectations better than expected

When the RBA released its quarterly policy statement in early May, the expectations were for a decline in total hours worked across the economy of 20 per cent.

The RBA has revised that number, with Mr Lowe stating he wasn’t expecting a decline of more than 15 per cent.

This is still a large number, however the scale of the downturn is lower than first thought.

Jobs, of course, are mission critical to the recovery and so too, according to Mr Lowe, is JobKeeper.

The need to extend JobKeeper

Keeping workers employed even if their place of business remains closed, is crucial to the recovery.

“It's clearly going to be a critical point when that scheme comes to an end and also when the deferral for six months of mortgage repayments and other payments that the banks are offering comes to an end,” Lowe said.

Preliminary APRA figures suggest Australians have frozen $160 billion worth of loan repayments, meaning September could be a crucial month for Australians.

With Treasury set to review JobKeeper in June, we will know shortly whether it will continue on its six months course to September, or be cut short.

The Morrison governmemt is insisting JobKeeper can’t keep going because the government can’t afford to keep it going, however Mr Lowe is of the opposite opinion saying it may be needed well into 2021.

“It will be important to review the parameters of that scheme. It may be in six months’ time we bounce back well and the economy is doing reasonably well and the schemes which were temporary in nature can be reformed without a problem. But if the economy has not recovered reasonably well by then, as part of that review we should be looking at perhaps the extension of that scheme,” he said.

“Right through to next year the economy is going to need support, from both monetary and fiscal policy… my main concern is that we don't withdraw fiscal support too early.”

The worry is that if the economy hasn’t recovered sufficiently to assist employees who are currently receiving JobKeeper, then they will be at risk of retrenchment.

That would be a tragic outcome and would damage the economy further.

Australia has done a great job in curbing the damage and it needs to continue on its current path.

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