MNI BRIEF: Rates Contractionary, Will Remain High - RBA's Lowe

Monetary policy is now contractionary and will likely stay elevated for some time on current forecasts, according to Reserve Bank of Australia Governor Philip Lowe.

“The strategy's working, inflation is coming down, and the most recently published forecasts by both the RBA and the Government have inflation coming back to 3.5% by mid-2025 and the unemployment rate rising but staying below where it was before the pandemic, and that's at the current level of interest rates,” Lowe told the Senate Economics Legislation Committee meeting Wednesday.

“Those forecasts are prepared on interest rates standing where they are for some time. That's the narrow path we're trying to tread and as I see things, we're still on that path. It's working and it's painful.” Lowe said success was not assured and “quite a few things have to go right for us.”

He added the latest Federal Budget was also broadly neutral, however, energy pricing intervention was helpful and had likely reduced the Reserve’s latest inflation forecasts to June 2024 by 0.75%.

The RBA surprised the market with a 25bp increase of the cash rate to 3.85% at its May 2 meeting (See MNI RBA WATCH: Shifts Hawkish, Targets Services).