MNI RBA Governor Lowe: Haven't Embraced Forward Guidance Yet

By Sophia Rodrigues

     SYDNEY (MNI) - The Reserve Bank of Australia hasn't had to use forward

guidance, Governor Philip Lowe said Wednesday, in a comment that confirms an

Insight published by MNI earlier that the RBA's next rate move message was never

intended to be a guidance.

     Lowe made the comments at a panel discussion at the ECB forum on central

banking in Portugal. The panel consisted of Fed Chair Jerome Powell, ECB

President Mario Draghi and Bank of Japan Governor Haruhiko Kuroda.

     Lowe said he was the odd member in the panel because he comes from a

smaller economy. He went on to point to other differences between RBA and the

other three major central banks.

     "We have had positive interest rates for the last decade, we haven't had to

go anywhere near zero, we haven't done quantitative easing, we haven't embraced

forward guidance and we've had 27 years of no technical recession," he said.

     Lowe's comment on forward guidance was timely and in line with MNI Insight

published earlier Wednesday that said RBA thinking is that it hasn't yet used

forward guidance as a policy tool the way it has been used by other central

banks such as the U.S. Federal Reserve and the Bank of England. 

     The article was in response to omission of the "members agreed that it was

more likely that the next move in the cash rate would be up, rather than down,"

line in the minutes of the June board meeting which both market and economists

regarded as a softening of the policy stance.

     At the discussion, Lowe said once again that he remains confident of

getting inflation back to 2.5%.

     On a question on the impact of the current global trade issues around

tariff, Lowe said it is "incredibly worrying."

     Lowe's main worry is not about the possibility of the global expansion

being derailed by tariffs but the impact of these developments on financial

markets and decision-making by businesses.

     Financial markets are very good in telegraphing future events into today,

and while this hasn't happened yet, this could change very quickly, Lowe warned.

     Businesses could also see more value in waiting and once financial markets

start incorporating this, they could turn it into one big global event, Lowe

said.

     "It is a low probability risk as of now but what is happening is very

worrying," Lowe said.

--MNI Sydney Bureau; tel: +61 2-9716-5467; email: sophia.rodrigues@marketnews.com

[TOPICS: MMLRB$,M$A$$$,M$L$$$,MT$$$$]