RBA Governor Philip Lowe reiterated in a speech that after today’s 25bps rate hike, “some further tightening of monetary policy may be required”. But he added the decision will “depend upon how the economy and inflation evolve”, and the central bank is “not on a pre-set course”. The Board will pay close attention to developments in the global economy, household spending, inflation and labor market outlook.
Lowe also explained today’s decision, and noted that while there was “confirmation” that inflation has peaked, ” it will be some time yet before inflation is back in the target range.” Labor market is “still very tight” and service inflation is “uncomfortably persistent abroad”.
He warned, “if people think inflation is going to remain high then, understandably, they will adjust their behaviour.” Firms will be more willing to put up their prices and workers will seek larger pay rises. If this adjustment in expectations were to happen, high inflation would become entrenched and the end result would be even higher interest rates and a poorer outlook for jobs.
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