Addressing the House of Representatives Standing Committee on Economics today, outgoing RBA Governor, Philip Lowe Lowe stated that the purpose behind the pauses in July and August was “to provide time to assess the impact of the (rates) increases to date and the economic outlook and the associated risks.”
He reiterated that “it is possible that some further tightening of monetary policy will be required”. But the decision would be largely based on incoming data and the Board’s evolving analysis of economic forecast and potential risks.
Lowe expressed optimism about recent economic data, remarking, “It is encouraging that the recent data are consistent with inflation returning to target over the next couple of years.”
But he also pinpointed two risks that RBA is closely monitoring. “The first is the outlook for household consumption,” he said, attributing this concern to the myriad of factors currently influencing household finances and expenditures.
The second risk highlighted was the potential persistence of high services price inflation which could lead to “prolonging the period of inflation being above target.”
Lowe emphasized the RBA’s forecast, which assumes a resurgence in productivity rates, aligning with levels seen pre-pandemic. Such growth, he suggested, would help in moderating the unit labour costs and subsequently, inflation. Yet, he cautioned, “If this pick-up in productivity does not occur, all else constant, high inflation is likely to persist, which would be problematic.”
