SYDNEY: Australia’s top central banker reiterated today (Feb 17) further increases in interest rates would be needed in the months ahead to ensure sky-high inflation returns to the 2%-3% target range.
Speaking before lawmakers, Reserve Bank of Australia (RBA) governor Philip Lowe said how much further interest rates needed to increase would depend on developments in the global economy, how household spending evolved and the outlook for inflation and the labour market.
“Based on the currently available information, the board expects that further increases will be needed over the months ahead to ensure that inflation returns to target and that this period of high inflation is only temporary,” Lowe said.
“We will do what is necessary to make sure that inflation returns to the target range.”
The central bank last week increased interest rates by a quarter point to a decade-high of 3.35%, bringing its tightening since last May to 325 basis points. It also compounded the blow by flagging yet further increases would be needed to contain inflation, which is running at three-decade highs.
Markets responded by raising the expected top for rates to around 4.1%, from 3.6% a month before, implying three more rate hikes are waiting in the wings.
Lowe said it was still possible that the Australian economy was headed for a soft landing, especially if inflation and wage expectations remained contained.
“But it is also possible that we are knocked off that narrow path,“ he said.
The fact that the board met every month gave it frequent opportunities to evaluate how risks evolved and to respond flexibly, he added. – Reuters