Policy Restrictive So Closer To Pause, But In “Data Dependent World”

RBA Governor Lowe’s comments today at the Financial Review Business Summit were consistent with yesterday’s statement but also gave us more details on the March discussion. He made it clear that monetary policy is now in restrictive territory and talked about being close to a pause but that it will be data dependent. He was more cautious on the monthly CPI than in the statement and continued to warn about damaging implications of high inflation.

• Lowe reiterated that the underlying message through all of the recent statements is that inflation is too high and that interest rates need to rise. He noted that if inflation doesn’t fall then we’re in “all sorts of trouble” and that it needs to be back at target by 2025.
• Before the April meeting there will be monthly inflation, employment, retail and business survey data and the Board will react according to what this data “collectively” suggests. The RBA is operating in a very “data dependent world”.
• Lowe believes that the RBA can navigate the “narrow path” and keep the employment gains while reducing inflation to target. He thinks that an unemployment rate below 5% can be maintained.
• The fact that Australia is different to the US and other countries was pointed out. Australian mortgages are more rate sensitive and wage’s growth is still consistent with inflation, unlike the US. Thus it is in a better position and probably won’t need to hike as much as the Fed.
• China’s reopening is not material to the inflation outlook but is positive for Australian growth through the commodity, education and tourism channels.
• See speech text here.