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Australia Reserve Bank governor Philip Lowe says credit ratings don't matter during the coronavirus crisis

10:16  14 august  2020
10:16  14 august  2020 Source:   msn.com

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a man wearing a suit and tie: Philip Lowe says governments should be using their balance sheets to create jobs. (ABC News: John Gunn) © Provided by ABC Health Philip Lowe says governments should be using their balance sheets to create jobs. (ABC News: John Gunn)

The Reserve Bank governor, Philip Lowe, says state governments should not be worrying about credit ratings at the moment.

He said their priority should be job creation and they should be using their balance sheets to achieve it.

"To date, I think many of the state governments have been concerned about [spending more] because they want to preserve their low levels of debt on credit ratings," RBA governor Phil Lowe said on Friday.

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Reserve Bank governor Philip Lowe warns Australia's unemployment rate is likely to hit 10 per cent by June, and even though Australia will recover, the coronavirus emergency "will cast a shadow over our Dr Lowe says the national output is likely to fall by about 10 per cent over the first half of 2020.

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"I understand why they do that, but I think preserving credit ratings is not particularly important.

"What's important is that we use the public balance sheet in a time of crisis to create jobs for people.

"Creating jobs for people is much more important than preserving credit ratings," he said.

Dr Lowe, who was appearing before a federal parliamentary committee, repeatedly told MPs on the committee that financing was not a constraint on government spending at the moment because interest rates were the lowest they had been since Federation in 1901.

He said the Commonwealth Government was shouldering much of the spending burden at the moment and state governments needed to step up.

"We need federal governments and state governments carrying their fair share," Lowe said.

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"The Federal Government, I understand, has announced [spending] measures so far equivalent to roughly 7 per cent of gross domestic product [GDP], it's been very important in getting the country through this, and we're going to see a budget deficit next year probably close to 10 per cent of GDP.

"The measures to date from state governments add up to almost close to 2 per cent of GDP.

"Going forward, the challenge we face is to create jobs, and the state governments do control many of the levers here," he said.

RBA will ensure states can borrow at low rates

Dr Lowe said he had "no concerns at all" about state governments being able to borrow more money at low interest rates, because the Reserve Bank was ensuring it.

He said state governments controlled many of the infrastructure programs in Australia, they were responsible for much of the maintenance of the infrastructure and they did much of the health and education spending too.

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"So I would hope over time we would see more efforts to increase public investment in Australia to create jobs, and the state governments have a really critical role to play there," he said.

"The priority for us is to create jobs, and state governments have an important role there and I think over time they can do more.

"But the Federal Government may be able to do more as well," he added.

Dr Lowe said Australia's economic recovery had been hampered by the recent outbreak of COVID-19 in Victoria and we were unlikely, at this stage, to record any growth nationally until the December quarter.

#growthfactorgraphicEMBEDfull

He said it was unlikely the RBA would be lifting interest rates from their current position, 0.25 per cent, for another three years because inflation was so weak.

The official unemployment rate rose to 7.5 per cent in July, from 7.4 per cent in June, and the RBA thinks it could peak at 10 per cent later this year.

It marked the first time in Australia's history that more than 1 million people were out of work, available to work and actively looking for work.

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Reserve Bank of Australia Governor Philip Lowe says it's possible that interest rates in the country could soon drop to zero.

Last month, Treasurer Josh Frydenberg said the effective unemployment rate was probably over 13 per cent by now.

[Hearken embed]

Video: Victoria's AAA credit rating at significant risk (Sky News Australia)

Victoria's AAA credit rating at significant risk
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