MNI BRIEF: RBA Details Hypothetical Monetary Policy Paths
MNI (SYDNEY) - The Reserve Bank of Australia has laid out hypothetical scenarios for monetary policy should demand either weaken or remain strong and hinder its target of returning underlying inflation to the 2.5% midpoint by the second half of 2026.
“While the policy paths shown in these charts are not necessarily ones the Board would follow, the two scenarios are illustrative of how the strategy may need to be adapted as conditions unfold,” said Sarah Hunter, assistant governor at the RBA. “In the upside scenario the Board may need to consider a tighter policy stance – this could be a rate hike or a longer period on hold. In the downside scenario, the Board may need to consider a looser stance – for example, by bringing forward rate cuts.” (See charts)
Hunter noted the scenarios, which cover only a fraction of overall uncertainty, feed into policy advice given to the Board each quarter. “The Board evaluates this information when setting policy, focusing on the strategy’s robustness amid inherent risks and the delayed effects of monetary policy on the economy,” she added.