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Live updates: Philip Lowe says the Reserve Bank will do 'what is necessary' to combat 'scourge' of high inflation

ABC Business logoABC Business 08.09.2022 07:21:38 By business reporter Michael Janda
RBA governor Philip Lowe said how high interest rates need to go, and how fast they get there, will be guided by economic data. (ABC News: John Gunn)

Reserve Bank governor Philip Lowe is speaking after Tuesday's interest rate rise.

Follow the live updates or click here to return to the full story.

The Reserve Bank governor has said he remains "committed to doing what is necessary" to prevent the "scourge" of high inflation taking hold, but did offer some hints that the pace of rate rises might soon slow.

Speaking two days after the Reserve Bank raised interest rates for the fifth month in a row, Philip Lowe said it remained "committed to doing what is necessary" to get inflation back down to its target range of 2-3 per cent.

"High inflation is a scourge," he said.

"It damages our standard of living, creates additional uncertainty for households and businesses, erodes the value of people's savings and adds to inequality."

However, Mr Lowe also offered the strongest hint yet that the RBA was considering slowing down the pace of rate rises, the last four of which have been half a percentage point each.

"We are conscious that there are lags in the operation of monetary policy and that interest rates have increased very quickly," he said.

"And we recognise that, all else equal, the case for a slower pace of increase in interest rates becomes stronger as the level of the cash rate rises.

"But how high interest rates need to go and how quickly we get there will be guided by the incoming data and the evolving outlook for inflation and the labour market."

Some of the biggest influences on that economic data and inflation are out of the Reserve Bank's control, such as the Ukraine war and China's economic slowdown.

"Some slowing in the global economy will help bring inflation down, but a sharp slowing would make the job of delivering a soft landing here in Australia much harder," Mr Lowe cautioned.

He also sent a warning shot towards those calling for bigger pay rises for workers, warning that this could further entrench inflation.

"If workers and businesses come to expect higher inflation, and wages growth and price-setting behaviour adjusts accordingly, the task of navigating that narrow path will be very difficult, if not impossible," he warned.

"A shift higher in inflation expectations will require higher interest rates. In time that would mean a sharper slowing of the economy."

Although Mr Lowe does not see any evidence of that happening so far.

"While there are some areas where wages are rising very quickly in Australia, aggregate growth in wages has not responded materially to the higher inflation and is not inconsistent with inflation returning to target over time," he added.

"It is important that this remains the case and that we avoid the cycle of higher inflation leading to higher wages growth and then higher inflation - a cycle like that would end in higher interest rates and a sharper slowing in the economy."

jeudi 8 septembre 2022 10:21:38 Categories: ABC Business

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