RBA Governor Philip Lowe delivered a speech titled “Demographic Change and Recent Monetary Policy” today. There he reiterated that “the next move in interest rates to be up, not down”. But the timing will depends upon the “speed of the progress” in “reducing the unemployment rate and having inflation return to around the midpoint of the target range on a sustained basis.” And in the Q&A, Low also noted that there is no strong case for a near term move.
On the economy, Lowe’s comments were similar to those in yesterday’s RBA statement. That is, GDP is expected to average a bit above 3% in 2018 and 2019. Unemployment rate is expected to drop over time to 5% at some point over the next few years. And Australia could “go lower than this on a sustained basis”. Due to once-off factors, inflation could slow to 1.75% in 2018. But over the forecast period, inflation is projected to rise to 2.5% in 2020.
Lowe also pointed to steady increased in job vacancies with vacancy rate hitting highest level in many years. And, there was an increased in number of businesses reporting hiring difficulties. The tightening of labor market will lead to higher wages as a “more general story”.
On financial market risks, Lowe noted that borrowing by investors has “slowed considerably” because of “reduced demand” and “tightening of credit standards”. And the change in financial trends has helped reduce the build-up of risk.”
