October 29, 2019 / 6:49 AM / 17 days ago

Returning interest rates to normal levels beyond central banks' control - Australia c.bank chief

SYDNEY, Oct 29 (Reuters) - Returning interest rates to “more normal” levels globally was beyond the control of central banks as it requires improving the investment climate, Reserve Bank of Australia Governor Philip Lowe said on Tuesday.

Lowe said there were two elements in boosting the investment backdrop - reducing geopolitical risks and pushing structural reforms that give businesses greater confidence about future economic growth.

“Both elements are largely beyond the control of central banks. They are a matter for government and for business,” Lowe said in a speech in Canberra.

“So this is the environment in which the Reserve Bank Board is setting interest rates.”

The RBA has cut its benchmark rate three times this year to a record low of 0.75% and Lowe reiterated on Tuesday the bank board was prepared to ease again if needed.

“Having said that, it is extraordinarily unlikely that we will see negative interest rates in Australia,” he added.

Lowe said recent interest rate reductions were helping Australia’s economy by supporting jobs and overall income growth.

The A$1.95 trillion ($1.34 trillion) economy has hit a soft patch now after 28 years of recession-free growth with retail sales slowing, housing prices subdued, construction activity sagging and consumer and business confidence sliding.

The RBA has repeatedly called on the government to spend more or bring forward some infrastructure projects or push structural reforms to boost productivity.

Prime Minister Scott Morrison is focussed instead on fulfilling an election promise of returning the budget to surplus this year.

However, the mood of the electorate seems to have changed.

A Guardian Essential poll out on Tuesday showed more than half of those surveyed said it was critical to prioritise stimulating the Australian economy and delaying surplus to help prevent a downturn.

“As is the case internationally, the focus needs to be on an improvement in the investment environment, so that investors are prepared to...use low funding costs to build new productive assets,” Lowe said.

“Not only would this help assist with a return to more normal interest rates, but it would be good for our collective welfare too.”

Lowe said the RBA could not ignore the global trends in high savings rate, weak business investments and policy easings by other major central banks when making rate decisions as doing so would lead to an unhelpful rise in the country’s currency.

The Aussie has fallen about 3% so far this year, on top of about 10% drop in 2018. ($1 = 1.4588 Australian dollars) (Reporting by Swati Pandey; Editing by Lincoln Feast)

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