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Lowe Interview Highlights

RBA

Below are some key takeaways from RBA Governor Lowe's TV interview in Australia last night. The Governor expects inflation to rise to 7% this year before coming down. The cash should rise to 2.5%, while the Governor remains very confident in the economic outlook over the next 12 months.

  • On monetary policy, Australians need to prepare for higher interest rates and policy settings will return to normal. ".... inflation is high – it's too high. At the moment it's 5 per cent, and by the end of the year I expect inflation to get to 7 per cent. That's a very high number and we need to be able to chart a course back to 2 to 3 per cent inflation."
  • "...I think it's reasonable that the cash rate gets to 2½ per cent at some point. And I say that because the midpoint of our inflation target is 2½ per cent. So an interest rate of 2½ per cent in inflation-adjusted terms is a real interest rate of zero, which in historical terms is a very low number. And I would expect that over time we want an average inflation adjusted interest rate to be more than zero."
  • "How fast we get to 2½ per cent, and indeed whether we get to 2½ per cent, is going to be determined by events."
  • On the inflation peak and when price pressure might start coming down. "By the first quarter of next year. The peak will be in the December quarter this year and by the time we get into the second half of next year, inflation will clearly be coming down, but in the first quarter, we'll see lower rates of headline inflation."
  • On the economic growth outlook for Australia. "We're expecting the Australian economy to continue to grow pretty strongly over the next six to 12 months. There’s still a bounce back from all the COVID restrictions. People are spending in a way that they weren't able to do last year."
  • "There's a big backlog of construction work to be undertaken and the number of job vacancies is extraordinarily high, so people can be confident the jobs will be there and in that environment people will keep spending."
  • Full a transcript, see this link.
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