RBA Gov Lowe says risk if sticky inflation materialises would need tighter policy

Reserve Bank of Australia Governor Lowe in his final public speech as Governor. Deputy Governor Bullock takes over as the new head of the Bank on September 18.

The title of Lowe’s speech today is “Some closing remarks”. If you would like to listen live, the link is here.

  • My recent focus is risk wages, profits run ahead of rates consistent
    with return to inflation target
  • If this risk
    materialised and inflation became sticky, would require tighter
    monetary policy
  • Will be difficult to
    return to the earlier world in which inflation tracked in a very
    narrow range
  • Inflation is likely
    to be more variable around target
  • Australia has been
    well served by a flexible inflation target
  • Possible that
    Australia can sustain unemployment rates below what we have had over
    the past 40 years
  • Now in an
    environment of stronger growth in nominal wages, which is positive
  • The recent
    productivity record isn’t encouraging; solution fundamentally a
    political problem
  • Interest rates
    influence housing prices, but are not reason Australia has some of
    the highest prices in the world
  • Issue that defined
    my term more than any other was forward guidance on rates during the
  • Guidance was widely
    interpreted as a commitment, rather than a conditional statement
  • With the benefit of
    hindsight, my view is that we did do too much during pandemic

Lowe is holding on to the optionality of further rate rises if required. For the past 3 meetings, the Bank has held the cash rate unchanged at 4.1%. The next official quarterly inflation report is due on October 25, with a policy meeting following on November 7. If the inflation report is uncomfortable for the Bank the November meeting will be in play. Its unlikely we get a move before then.

AUD/USD is little changed after the Chinese trade data and Lowe’s speech.

Full text is here:

As a side note, in 2024 the RBA schedule of meetings will change significantly,

This article was written by Eamonn Sheridan at www.forexlive.com. Source