RBA Will Do What’s Needed to Keep Inflation Low, Stable: Lowe
By Swati Pandey
(Bloomberg) — The Reserve Bank of Australia will do what is necessary to maintain low and stable inflation, Governor Philip Lowe said, in a signal that policy makers will act should prices accelerate too sharply.
Lowe, in his first speech of the year on Wednesday, acknowledged a recent jump in core inflation above the midpoint of the central bank’s 2-3% target range, but said there were still uncertainties over whether price pressures were sustainable. That was particularly so when wages growth remains tepid.
“We don’t want to see inflation too low or too high,” Lowe said. “We will do what is necessary to maintain low and stable inflation, which is important not only in its own right but also as a precondition for a sustained period of full employment.”
The RBA on Tuesday decided to end its 15-month quantitative easing program, a move Lowe said today “does not represent a tightening of monetary policy.” But the bank wrongfooted markets when it held to its dovish rate stance at a time when counterparts from Washington to Wellington are preparing or have already begun to hike. 
Traders responded by pushing back bets for rate liftoff to June from May, while economists stuck to their August calls in the expectation that a tight labor market will quickly generate pay pressure. The RBA has had the cash rate at a record-low 0.1% since November 2020. 
The governor today released the RBA’s forecasts for wages, seeing the quarterly Wage Price Index rising 2.75% this year and 3% in 2023. 
“Based on the evidence we have, it is too early to conclude that inflation is sustainably in the target range,” Lowe said, adding he did not have a specific definition for that phrase. 
He argued that consumer prices Down Under are likely to settle again once global supply chain blockages unwind. 
The central bank has struggled to persuade investors it will keep rates unchanged against the backdrop of volatility generated by the pandemic, in which inflation has rapidly superseded economic stimulus as the key challenge for global central banks.
Lowe said today that bank expects the economy will expand in the current quarter, though only modestly amid an outbreak of the omicron variant of coronavirus.
“We are in the position where we can take some time to obtain greater clarity on these various issues. Countries with higher rates of inflation have less scope here,” Lowe said. “The board is prepared to be patient as it monitors the evolution of the various factors affecting inflation in Australia.”
Lowe’s difficulty in holding to his dovish line is highlighted by the RBA’s own forecasts showing the jobless rate falling below 4%, generally seen as full employment, and core inflation pushing higher. 
“We are closer to full employment and achieving the inflation target than we had anticipated,” the governor said.