“We want to see results before we change interest rates,” says RBA boss
Market watchers continue to insist that the Reserve Bank is going to raise the cash rate long before its stated timeline of 2024 at the earliest. Not so fast, says RBA Governor Philip Lowe.
The central bank is continuing to push back against predictions that the cash rate will start rising as soon as next year – while emphasising that it has the flexibility to adjust its bond-buying program as the economic outlook changes, according to a report by The Australian.
In a speech to the Economics Society of Queensland, Lowe said the RBA was “seeking to provide as much guidance about future bond purchases as we reasonably can in an uncertain world, while retaining the flexibility to respond in a timely way to changes in the state of the economy and the outlook.”
Lowe said that the RBA’s bond-buying program was helping achieve the goals of full employment and inflation consistent with its target, but “we are still some way from reaching those goals.”
However, when the bank cut its bond purchases to $4 billion a week starting in September, it was “responding to the stronger-than-expected economic recovery and the improved outlook,” Lowe said.
The market’s predicted chance of a 25-basis-point hike in the cash rate fell from 71% on Wednesday to 59% on Thursday, according to The Australian.
However, many market watchers still expect the central bank to hike rates earlier than their stated timeline.
“Further ahead, we expect the RBA will abandon its bond yield target in the second half of 2022, enabling it to hike rates in 2023, but in our view, it shows almost no willingness to pre-emptively signal this to the market,” UBS chief economist George Tharenou told The Australian.
Read more: Two rate hikes in the next two years, say markets
In his speech, Lowe pointed out that the condition the RBA set for a cash-rate hike is that inflation be “sustainably in the 2% to 3% range.”
“It’s not enough for inflation to be forecast in this range … we want to see results before we change interest rates,” Lowe said.
Lowe stressed that the RBA’s bond purchases would “end prior to any increase in the cash rate,” and that “for inflation to be sustainably in the 2% to 3% range, it is likely that wage growth will need to exceed 3%.”
However, Lowe said, “the current rate of wage growth is materially less than 3%,” and the RBA still projected that “the lift in aggregate wages growth will be gradual.”
Ryan Smith is currently an executive editor at Key Media, where he started as a journalist in 2013. He has since he worked his way up to managing editor and is now an executive editor. He edits content for several B2B publications across the U.S., Canada, Australia, and New Zealand. He also writes feature content for trade publications for the insurance and mortgage industries.LinkedIn | Email
