Lowe: Further Rate Hikes Necessary, Not On Pre-Set Path

On the future path of interest rates Governor Lowe notes that "Given the outlook for the economy and inflation, further normalisation of interest rates will be required. In making its decisions, the Board will continue to be guided by the evidence on both inflation and the labour market. We will also continue to be flexible and responsive to changing circumstances. We will do what is necessary to ensure that inflation outcomes are consistent with the medium-term inflation target. This does not require an immediate return of the inflation rate to target because our monetary policy framework intentionally allows for flexibility and some variability in inflation from year to year. But we do need to ensure that the inflation rate tracks back to the target range of 2 to 3 per cent over time. This would be harder to achieve if the inflation psychology in Australia were to shift in a durable way due to the recent higher inflation outcomes. The decision to move today, rather than wait, should help on this front."

• "In making our decisions over coming months, we need to navigate through some considerable uncertainties. Globally, it remains uncertain how the supply-side problems will be resolved and developments in Ukraine are unpredictable. Another source of uncertainty is how household spending in advanced economies responds to the decline in real wages, as wages growth has not kept pace with the higher inflation. Also, we have no contemporary experience to guide us with how labour costs and prices in Australia will behave at an unemployment rate below 4 per cent. It is also relevant that households have much more debt than previously, and many households have never experienced rising interest rates. So this is another aspect that we will be watching carefully."
• "Notwithstanding these uncertainties, I expect that further increases in interest rates will be necessary over the months ahead. The Board is not on a pre-set path and will be guided by the evidence and data as it takes the necessary steps to achieve the medium-term inflation target and support full employment in Australia."