SYDNEY: Australia’s economy is still in a recovery phase from a pandemic recession and will need continued policy stimulus for some time before that is complete, the country’s top central banker said on Thursday.
Speaking at a conference on agriculture, Reserve Bank of Australia (RBA) Governor Philip Lowe acknowledged the economy had picked up faster than expected, but emphasised that wages growth and inflation were surprisingly subdued, report agencies.
“It is important not to lose sight of the fact that we are still in the recovery phase,” said Mr Lowe. “Wages growth and inflation remain subdued and there have not been upside surprises.”
Mr Lowe noted that for inflation to be sustainably within the bank’s 2-3 per cent target band, wage increases would need to be materially higher than they had been recently.
This could take some time as firms were laser focused on containing costs and using non-wage strategies to retain and attract staff, or even choosing to ration output instead.
These constraints were structural in nature and would not be overcome until a tight national labour market was sustained for some time, he said.
For that reason, the RBA had signalled it would not raise the 0.1 per cent cash rate until inflation was back in the 2-3 per cent band and that was unlikely until 2024, said Lowe.
He noted that at its July policy meeting, the bank will consider whether to shift its current target for three-year yields from April 2024 to the November 2024 bond line.
The central issue was the probability of the cash rate increasing over a three-year window and the bank had reviewed a range of possible scenarios, he said.
“In some of these, the conditions for an increase in the cash rate could be met during 2024, while in others these conditions are not met,” said Lowe. “The Board will review these scenarios again at its next meeting.”
The bank will also be considering whether to alter its current A$100 billion bond buying programme, though it had ruled out ceasing the programme altogether.
Mr Lowe said the key consideration was how the RBA could best support the ongoing recovery of the economy.
“The Board wants to see the recent recovery transition into strong and durable economic growth, with low unemployment and faster growth in wages than we have seen recently.”
Options included another round of A$100 billion in bond buying, scaling back or spreading out the purchases, or moving to an approach where the pace of the bond purchases was reviewed more frequently, based on the flow of data and the economic outlook.