RBA Governor Lowe to speak on inflation

Reserve Bank Governor Philip Lowe is set to give a speech on inflation targeting amid reports Treasurer Josh Frydenberg could make changes to the document that sets the parameters for central bank policy.

Dr Lowe will speak in Sydney at lunchtime Thursday on “Inflation Targeting and Economic Welfare”.

The Australian Financial Review quoted the treasurer as saying he is taking advice from his department on the Statement on the Conduct of Monetary Policy, the agreement between government and the RBA that has since 1996 set the inflation target at between two and three per cent.

While The Australian speculated that could mean Dr Lowe could signal the inflation target could be lowered – which would ease pressure on the RBA to cut the cash rate even further from its record low 1.0 per cent – the AFR said any changes to the statement would be minor.

NAB market economist Kieran Davies does not expect Dr Lowe to make any dramatic announcement.

“We think that Governor Lowe will highlight that the Reserve Bank’s broad mandate means that it can deliver average inflation of between two and three per cent in a way that supports sustainable growth in the economy and that best serves the public interest,” Mr Davies said.

“This flexibility allows the bank to take into account the impact of its decisions on financial stability, as was the case in recent years, and the labour market, where the bank now emphasises the desirability of lower unemployment given its puts the NAIRU at 4.5 per cent or less.”

The NAIRU, or non-accelerating inflation rate of unemployment, is the unemployment rate below which inflation would be expected to rise.

Australia’s unemployment rate remained at a seasonally adjusted 5.2 per cent in June, while inflation slowed to 1.3 per cent for the 12 months to March 31.

Mr Davies also said Dr Lowe may also repeat his call for government to provide additional economic stimulus “even though the government still seems wedded to the politically symbolic objective of achieving a budget surplus”.

Dr Lowe has suggested infrastructure investment as one way government could stimulate the economy, although the eastern states are already doing much of the heavy lifting through their own large-scale projects.

Many economists are tipping another two 0.25 percentage-point cuts by mid-2020, and respected Westpac economist Bill Evans this week brought forward his predicted timetable for the cuts to October and February.

AAP

Be the first to comment

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.