New RBA Deputy Governor Hauser Reiterates Inflation “Toxic”

The RBA’s new deputy governor Hauser from the Bank of England spoke publicly for the first time today in a fireside chat. He said that Australia is in a better economic position than much of the OECD, including the euro area and the UK, but is also different to Canada and the euro area where rates were cut for the first time this week. He said the most important message is that the central bank will bring inflation down rather than signalling where rates are going.

• Hauser reiterated that central banks are targeting a particular rate of inflation rather than interest rate, as it is important to contain the former as it is “toxic”. A central bank doesn’t want economic participants to believe that it won’t return inflation to target as that will boost inflation expectations, which are still well anchored in Australia.
• He said that the “narrow path” plan to bring inflation gradually back to target to retain recent job gains is working. It is better to be cautious rather than rapidly closing the output gap and creating a deflation problem instead.
• Supporting productivity growth is a job for governments and business not the central bank.