Australia’s central bank is entering a new phase. Outgoing Reserve Bank of Australia (RBA) Governor Philip Lowe spoke before lawmakers on Friday. He described the policy as being in the “calibration stage.” Inflation’s worst may be over, but some further tightening might be necessary.
Inflation reached a peak late last year. It was a three-decade high of 7.8%. It then trended down to 6% last quarter. The RBA projects it to return to its target band of 2-3% in late 2025.
Interest rates increased by 400 basis points since May last year. Lowe described the current stage as “calibration.” Rates are restrictive and working to balance supply and demand.
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Lowe said that further tightening might be required. It depends on incoming data and evolving risks. The goal is to ensure inflation returns to target within a reasonable time frame. He reiterated earlier comments.
This appearance was Lowe’s last. The government chose not to reappoint him when his term ends in mid-September. Deputy Governor Michele Bullock will take his place.
Lowe acknowledged that it has been a difficult year for Australians. However, he said, “The worst is over.” The aim is to return inflation back to target and strengthen the labour market. It should be stronger than before the pandemic.
The RBA’s aggressive rate hikes pushed the cash rate to a decade-high of 4.1%. The bank paused in July and August. They wanted to assess if inflation was heading lower as desired.
Financial markets and analysts are divided. They can’t agree on whether there might be one more rate rise this year. Lowe added an insight. Rates would need to be 100 basis points above current levels to get inflation down to target in 2024.
The Australian economy is on a “narrow path” towards a soft landing. The country faces a significant challenge. Balancing the easing of inflation without a dramatic rise in unemployment is the key. Lowe’s words and policy directions provide a hopeful outlook. It might signal that the nation’s economic struggles are moving towards resolution.
This news is based on The Star.
