RBA ‘not in lockstep’ on global rate hikes

Christian Edwards
(Australian Associated Press)

Slow wage growth and low inflation are at the top of the Reserve Bank of Australia’s challenges, the central bank governor has said, reiterating the bank’s determination to walk its own path on monetary policy.

Governor Philip Lowe says while inflation was low, the RBA won’t be trying for a more rapid pick-up in inflation through further monetary stimulus, despite high household debt and the unusually slow growth in incomes.

“The RBA did not move in lockstep with other central banks when monetary stimulus was being delivered and we don’t need to move in lockstep as some of this stimulus is removed,” he said in a speech at a lunch for the Anika Foundation in Sydney on Wednesday.

JP Morgan analyst Sally Auld said in terms of the policy outlook, Dr Lowe implied the bank would stay be staying its hand.

“The Governor did a pretty good job of suggesting a “low for long” outlook for the RBA cash rate without explicitly committing to such a path,” Ms Auld said.

Dr Lowe also defied the suggestion of a growing uniformity some observers have noted among global central bank policymakers.

Around the world, central banks are now starting to increase or suggest increases to interest rates while others are wondering when to start withdrawing monetary stimulus.

“This has no automatic implications for monetary policy in Australia,” Dr Lowe said.

“These central banks lowered their interest rates to zero and also expanded their balance sheets greatly. We did not go down this route,” Dr Lowe said.

According to Ms Auld, Dr Lowe’s comments are as close as the RBA is going to get to acknowledging a low-for-long rates outlook.

“Rates clearly aren’t rising until the RBA is confident that wages growth and inflation are lifting,” she said.

According to Dr Lowe, “insidious” slow wage growth is now a challenge for the central bank and means Australia will struggle to meet the bank’s inflation target.

“If wage growth is stuck at 2 per cent we’re going to struggle hitting 2.5 percent inflation, he said.

The annual inflation rate dipped from 2.1 per cent to 1.9 per cent in June quarter figures released on Wednesday – below the RBA’s 2 to 3 per cent target.

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