“If collectively they (data) suggest the right thing is to pause then we’ll do that, but if they suggest that we need to keep going we’ll do that,” said Lowe. — Bloomberg
SYDNEY: Australia’s central bank has a “completely open mind” about its April policy meeting and will be guided by key economic data on whether to raise interest rates further or pause tightening, governor Philip Lowe said.
The Reserve Bank of Australia’s (RBA) rate-setting board will closely monitor reports on employment, inflation, retail sales and business surveys ahead of its April 4 meeting, Lowe said in response to a question in Sydney.
“If collectively they suggest the right thing is to pause then we’ll do that, but if they suggest that we need to keep going we’ll do that,” the governor said at an Australian Financial Review conference.
“So we’ve got a completely open mind about what happens at the next board meeting.”
The RBA chief’s message contrasts with Federal Reserve chair Jerome Powell, who overnight opened the door to raising rates higher and potentially faster than previously anticipated.
Lowe’s softer tone resulted in Australia’s 10-year yield touching 35 basis points below the similar-dated US rate, the deepest discount since Nov 11.
The governor said the biggest difference with the United States is that Australia’s wage growth is still consistent with the RBA’s 2%-3% inflation target, reducing the risk of a price-wage spiral.
Earlier, in his speech Lowe acknowledged that the central bank is approaching a point where a pause in the tightening cycle will be “appropriate.”
His comments resulted in money markets revising bets for next month’s meeting to about a 50% chance of standing pat.
The RBA chief’s guidance will be a welcome reprieve for Australia’s centre-left government, which is trying to keep fiscal and monetary policy aligned to cool inflation.
Treasurer Jim Chalmers said his May budget will focus on “relief, repair and restraint.”
Even so, Lowe reiterated yesterday that further rate increases are likely to be needed to rein in still-elevated inflation.
“Inflation is still too high,” he said in his speech. “If we don’t get inflation down fairly soon, the end result will be even higher interest rates and more unemployment.”
The bank’s own forecasts, published last month, show headline inflation will hit the top of its range only in mid-2025, from 7.8% last quarter.
The RBA is conducting its most aggressive tightening cycle in a generation, having hiked by 3.5 percentage points from a record low 0.1% in May.
Money markets are pricing in a peak rate of 4% this year, suggesting at least one more quarter-point increase to come.
Lowe said the current policy-setting environment is complex, “with many of the variables we monitor at near record highs or lows.”
He reiterated a desire to engineer a soft landing in the economy and noted the board was managing dual risks.
“One is the risk of not doing enough, which would result in high inflation persisting,” he said. “The other is the risk that we move too fast, or too far.” — Bloomberg
