MNI BRIEF: Wary Of 'New World' Of Variable Inflation -RBA Lowe

Reserve Bank of Australia Governor Philip Lowe warned more elevated inflation is the first big test of central bank credibility, and it must be passed to manage policy in a new world of more variable inflation.

Lowe said policymakers would have to deal with more year-on-year variation in inflation than at any point over the past 30 years, making the credibility of the monetary policy regime "more important than ever."

"This is the first test in the new world where inflation is going to be more variable, the first test where inflation has moved out of the range in which it's been for 30 years, and we need to demonstrate to the public that inflation will come back down," Lowe said at a Bank of Thailand conference. "If we don't pass this first test, then the next tests are going to be even harder.

Lowe said it was still possible to tread the "narrow path" but "it's going to be pretty easy to be knocked off it." He also said policy lags may be longer given savings built up by Australians during the pandemic. The RBA meets Tuesday, with expectations for a 25bps hike in benchmark rates. (MNI RBA WATCH: Another 25bp Hike, Eyes On Guidance Tweaks)