In a speech, RBA Governor Philip Lowe revealed further insight into the central bank’s decision-making process and concerns regarding inflation. Lowe underscored RBA’s decision to raise interest rates once more yesterday as an effort to confidently bring inflation back to target within a reasonable timeframe.
Governor Lowe said, “Yesterday’s decision to increase interest rates again was taken to provide greater confidence that inflation will return to target within a reasonable timeframe.”
He attributed this decision to a recent influx of data, suggesting “greater upside risks” to the Bank’s inflation outlook. Persistent inflation in services prices, both domestically and abroad, combined with recent data on inflation, wages, and housing prices outpacing forecasts, were contributing factors.
The Governor noted, “Given this shift in risks and the already fairly drawn-out return of inflation to target, the Board judged that a further increase in interest rates was warranted.”
However, he also highlighted various factors the Board will monitor closely in the coming months, including developments in the global economy, domestic household spending, the growth rate in unit labour costs, and inflation expectations.
While acknowledging that the RBA remains on a narrow path, Lowe pointed out “significant risks”, particularly the possibility that “inflation stays too high for too long”.
He concluded, “Some further tightening of monetary policy may be required, but that will depend upon how the economy and inflation evolve. The Board will continue to pay close attention to developments in the global economy, trends in household spending, and the outlook for inflation and the labour market.”
