In the second parliamentary grilling today, RBA Governor Philip Lowe said, “based on the currently available information, the board expect that further increases will be needed over the months ahead to ensure that inflation returns to target.”

“Given there is a significant demand element to inflation, we need to respond to that with further monetary policy and we need to make that clear to the community that we were not done yet,” Lowe said.

“The RBA and many other central banks are managing two risks,” he said. “One is the risk of not doing enough, which would result in high inflation persisting and then later proving very costly to get down. The other is the risk that we move too fast, or too far.”

RBA said Australia’s financial system faces “increased risks” from the coronavirus pandemic, but it’s “well placed to manage them”. The systems enters the challenging period in a “strong starting position”. “Capital levels are high and the banks’ liquidity position has improved considerably over recent times,” it added. “The Australian banks also enter the downturn with high profitability and very good asset performance.”

While most businesses were in good financial health before the pandemic, “some pockets of vulnerability were evident in the retail trade, food and accommodation services, agricultural and construction sectors.” Increase in business failures and loan arrears are “likely over the coming months”. And, there is “considerable uncertainty” around the trajectory of the economic shock and subsequent recovery

Full report here.