Australia’s Central Bank Considers Further Tightening as Inflation Looms
The Reserve Bank of Australia (RBA) is considering the possibility of implementing additional tightening measures to control inflation. Philip Lowe, the outgoing Governor of the RBA, stated that the need for further tightening would depend on data and evolving assessments of the economic outlook and associated risks.
Appearing before lawmakers, Lowe indicated that the recent data aligns with the economy continuing on a narrow path towards a soft landing, where inflation eases without a significant rise in unemployment. Despite this positive development, Lowe highlighted two risks that the RBA will closely monitor – the outlook for household consumption and high services inflation.
Lowe expressed the RBA’s objective to establish a credible path towards achieving the inflation target over the next few years, in order to prevent any damaging shifts in inflation expectations. The central bank also aims to strike a balance between reducing inflation in a timely manner and preserving the progress made in the labor market.
To curb inflation, the RBA has already raised rates by 400 basis points, bringing them to a decade-high of 4.1%. However, the bank paused on further rate hikes in July and August to assess whether inflation was declining as desired.
Financial markets and analysts are divided on whether there will be another rate increase later this year.
Lowe’s appearance before lawmakers marked his final one as the government has chosen not to reappoint him when his first term ends in mid-September. Instead, Deputy Governor Michele Bullock will assume the position.
In conclusion, the RBA is actively assessing the need for additional tightening measures to manage inflation. The central bank aims to strike a balance between curbing inflation and ensuring stability in the labor market. While it remains to be seen if further rate hikes will occur, the RBA continues to monitor the economic outlook and potential risks. As Lowe’s tenure comes to an end, Deputy Governor Bullock will step into the role.
