The Reserve Bank governor has said he remains “committed to doing whatever it takes” to prevent the “flag” of high inflation from taking hold, but has given some hints that the pace of rate rises could slow – soon
Key Points:
- Philip Lowe says high inflation is a ‘flaw’ that must be prevented from being fixed
- RBA governor says global economic slowdown and improving supply chains show signs of easing inflationary pressures
- Lowe said that as interest rates rise, the case for holding back the increases becomes stronger
Speaking two days after the Reserve Bank raised interest rates for a fifth consecutive month, Philip Lowe said it remained “committed to doing whatever it takes” to return inflation to its target range of 2-3%.
“High inflation is a scourge,” he said.
“It hurts our living standards, creates additional uncertainty for households and businesses, erodes the value of people’s savings and increases inequality.”
However, Lowe also provided the strongest hint yet that the RBA was considering slowing the pace of rate hikes, the last four of which have been half a percentage point each.
Look back on the live blog
“We are aware that there are delays in the operation of monetary policy and that interest rates have increased very quickly,” he said.
“And we recognize that, all things being equal, the case for a slower pace of interest rate increases becomes stronger as the level of the cash rate rises.
“But how high interest rates should go and how quickly we get there will be guided by incoming data and developments in the outlook for inflation and the labor market.”
Some of the biggest influences on these economic data and inflation are outside the Reserve Bank’s control, such as the war in Ukraine and China’s economic slowdown.
“A slowdown in the global economy will help reduce inflation, but a sharp slowdown would make the job of soft landing here in Australia much more difficult,” Lowe warned.
He also fired a warning shot at those calling for bigger wage increases for workers, warning that this could further entrench inflation.
“If workers and businesses come to expect higher inflation, and wage growth and pricing behavior adjust accordingly, the task of navigating this narrow path will be very difficult, if not impossible,” he said. warn.
“A higher change in inflation expectations will require higher interest rates. Over time, this would mean a sharper slowdown in the economy.”
Although Lowe sees no evidence of that so far.
“While there are some areas where wages are rising very quickly in Australia, aggregate wage growth has not materially responded to rising inflation and is not inconsistent with inflation returning to target over time” , added.
“It is important that this remains the case and that we avoid the cycle of higher inflation leading to higher wage growth and then higher inflation – such a cycle would end with higher interest rates and a stronger slowdown in the economy.”
Live updates
33 days ago, September 8, 2022 at 04:05
By Bridget Judd
key event
Philip Lowe says those unhappy with higher interest rates ‘should welcome stronger economy’
RBA governor says he knows people ‘don’t like’ higher interest rates.
“But you should welcome the stronger economy, and that’s what I would say to people who are not satisfied with the promise, it wasn’t a promise.”
41 minutes agoThu, September 8, 2022 at 03:57
By Bridget Judd
Philip Lowe says RBA ‘didn’t promise’ interest rates wouldn’t rise until 2024
Mr Lowe says many people interpret his previous statements as saying that, “but if you look back carefully, I never said that”.
“What we said was that we thought the pandemic would have disruptive and lasting effects on the economy that would keep inflation low, keep unemployment high for years, and we wanted to do what we could to prevent that.
“And that meant we were likely to keep interest rates low for a long period of time until 2024.
“So it was very conditional, we didn’t make any promises.”
47 days ago, September 8, 2022 at 03:52
By Bridget Judd
key event
Philip Lowe says he has ‘no plans to resign’
Asked how he would respond to those calling for his resignation in the wake of Tuesday’s interest rate hike, Lowe says he has “no plans to resign.”
“The unemployment rate in Australia today is the lowest it has been in 50 years,” he says.
“Labor force participation is at a record high, young Australians can get jobs in ways they couldn’t before, people are working longer hours and underemployment is down. This is a huge economic and social benefit “.
He says that in the end he believes the RBA made the right decisions.
“People have jobs. Kids have opportunities. Household incomes are rising. That’s what I would say to people who don’t like me and my job.”
48 minutes agoThu, September 8, 2022 at 03:50
By Bridget Judd
Opening borders is useful, but RBA governor warns ‘thinking it’s a solution to tight labor market’
Lowe says that opening up borders is useful in addressing skills shortages and “from that perspective, it’s a positive”.
“But I’m just warning you when you think it’s a solution for the tight labor market. Because when your project manager goes home after working for you, they have to live somewhere.
“Every now and then they go to the doctor, they go out, they eat, they entertain themselves, maybe they have to educate their children and when they do that it creates more demand for labor.”
53 days ago, September 8, 2022 at 03:45
By Bridget Judd
Inflation is prolonged and “that will hurt people on low incomes the most”, says Philip Lowe.
The RBA governor says he knows “it’s very difficult for people to accept the fact that wages are not rising with higher inflation”.
“This is very difficult and is causing distress to many people.
“But the alternative is that wages rise with inflation, which means inflation is prolonged, means even higher interest rates later and more unemployment later.
“And that’s going to hurt low-income people the most. I know this is tough right now, it’s going to be tough over the next year or so until inflation comes down.”
56 minutes agoThu, September 8, 2022 at 03:42
By Bridget Judd
RBA governor says he expects inflation expectations to ‘remain contained’
Asked how much consideration he gives to the message from other central banks abroad that “inflation is intolerable and we need to raise aggressively”, Lowe says it is “certainly a big factor”.
“But at the end of the day, our monetary policy will be determined by conditions specific to Australia … I expect inflation expectations to remain contained.”
59 minutes agoThu, September 8, 2022 at 03:40
By Bridget Judd
The RBA talked about households with savings cushions. who are they
These questions were asked of Philip Lowe.
He says they spent quite a bit of time trying to understand where the savings were.
“And the reality is that most of them sit in high- and middle-income households. Many people who have white-collar jobs can keep their jobs during the pandemic, they wouldn’t be able to spend [money].
“So they kept their income and they couldn’t spend and the money went into their clearing accounts. I think you saw in one of my charts, excuse me, the very large increase in balances and clearing accounts and this is mainly from the middle and upper and high income earners.
“So we’re very aware of that and the fact that higher interest rates [are] it’s going to affect more people, people who have lower incomes and who haven’t built the biggest buffers.”
1 hD ago, September 8, 2022 at 03:35
By Bridget Judd
How is the RBA considering the impact of interest rate rises on households?
Mr Lowe says “you might be surprised that some people write to me to thank him for the higher interest rates”.
“They depend on interest rates, higher interest income, so we’re very aware that higher interest rates affect the community differently.
“And we spent a lot of time over the last few years looking at the different datasets, disaggregated datasets, where we can see how consumption responds differently to the income distribution.
“That’s what we’re doing and we’ll continue to pay close attention to that.”
1 hour ago September 8, 2022 at 03:32
By Bridget Judd
“The world is very uncertain and the economy must be flexible”
Asked about multi-business negotiation, Philip Lowe makes a more general point about uncertainty and the economy.
“The world is very uncertain and the economy has to be flexible in response to that uncertainty,” he says.
“We have a flexible exchange rate, a flexible monetary policy and hopefully some flexibility with fiscal policy. We have to be flexible in the labor market.”
1 hour ago, September 8, 2022 at 03:29
By Bridget Judd
RBA Governor Philip Lowe is asking questions
Reserve Bank Governor Philip Lowe takes questions after Tuesday’s interest rate hike.
He told the audience he remains “committed to doing whatever it takes” to prevent the “scourge” of high inflation from taking hold.