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- RBA Governor Philip Lowe reiterates the possibility of a 2022 rates hike, though he remains tight-lipped about exactly when this might happen
- He says Australia’s central bank has the luxury of time, which countries with higher inflations rates have not had, and so the RBA would be “patient” in assessing the need for a rates hike
- Still, Dr Lowe says it is plausible the bank will lift the cash rate later this year if the economy continues to perform strongly
- The RBA forecasts GDP to grow by 4.25 per cent in 2022 and 2 per cent in 2023, with unemployment expected to decline to around 3.75 per cent by the end of this year
- Dr Lowe’s comments follow a report from Commbank Economic Insights in which the Big Four bank predicted a rates hike as early as August as wages growth continue to increase
The Governor of the Reserve Bank of Australia (RBA), Philip Lowe, has reiterated the possibility of a 2022 rates hike, though he remained tight-lipped about exactly when this might happen.
Addressing the National Press Club in Sydney, Dr Lowe spoke through the RBA’s outlook for the Australian economy and its decision to end its major bond-buying program on February 10.
Unsurprisingly, much of the discussion addressed inflation, both in terms of where Australian inflation is heading and regarding fears about ramping consumer prices around the world, particularly in the United States.
He said the central bank would be closely monitoring the inflation situation in Australia but would be “patient” before raising rates.
While the Australian economy is still rife with uncertainty regarding Omicron, supply chain disruptions, and low unemployment despite worker shortages in some key industries, Dr Lowe said the RBA had the luxury of time to assess these concerns before clinching a rates decision.
“We are in the position where we can take some time to obtain greater clarity on these various issues,” Dr Lowe said in his address.
“Countries with higher rates of inflation have less scope here. The board is prepared to be patient as it monitors the evolution of the various factors affecting inflation in Australia.”
The comments largely echo Dr Lowe’s remarks in his post-policy-meeting statement on Tuesday. Though the RBA noted the underlying inflation rate was within its target of between 2 and 3 per cent, Dr Lowe said the bank could not conclude that it was “sustainably” within this range.
“We do not have a specific definition as to what ‘sustainably in the target range’ means,” he said today.
“The actual rate of inflation is relevant as are the trajectory and the outlook. So too is the breadth of price increases and the factors driving them.
“Based on the evidence we have, it is too early to conclude that inflation is sustainably in the target range.”
As such, Dr Lowe implied the bank would sit on the sidelines for at least a large part of 2022. He left the door open for a 2022 rates hike, saying that was a “plausible scenario”.
“If things go well, and the economy performs strongly, then there are clearly scenarios where we would be increasing rates later this year if some of the uncertainties are resolved,” he said in a question and answer session following his address.
The RBA is forecasting GDP to grow by 4.25 per cent in 2022 and 2 per cent in 2023, with unemployment expected to decline to around 3.75 per cent by the end of this year.
Yet, some analysts seem to think some of the RBA’s forecasts are perhaps too bearish: Commonwealth Bank Economic Insights released a Wednesday report predicting a rates hike as early as August.
The Commbank report said wages growth was accelerating at a faster pace than the RBA had predicted and was expected to continue to increase through the year. With inflation to reach “at least” 3.5 per cent by mid-2022, CBA said, the RBA will be in a position to pull the trigger on a rates hike before November.
Nevertheless, Dr Lowe said so far, Australia is closer to full employment and achieving its inflation target than it had previously expected.
“It has been a difficult few years for the country, but our economy has proven to be resilient and Australians are adapting to living with the virus.”
