RBA’s Bullock Sees Need for Further Easing
Synopsis
Michele Bullock said weaker demand and labour market conditions may be required to restore inflation to the target band.
Key Highlights
- Further easing in demand and the labour market is probably needed to get inflation back into the target range, according to RBA Governor Michele Bullock.
- She stated that it is not yet clear whether the effects of earlier interest rate hikes would suffice to make this happen.
- Bullock stated the Reserve Bank was ready to increase interest rates further if needed.
Further easing in demand and the labour market is probably needed to get inflation back within the central bank’s target band, Reserve Bank of Australia Governor Michele Bullock said.
Addressing an Anika Foundation Fundraising Lunch in Sydney yesterday, Bullock said it was still unclear if the effect from previous interest rate increases would be enough to return inflation to target.
Inflation Remains Above Target
Bullock added the inflationary effect from the US-Iran tensions on fuel prices and headline inflation has been less than feared.
But she added headline inflation is still significantly above target, and core inflation remains high. The housing market was also weaker than expected in May, she added, partly due to recent policy changes and a softer market sentiment.
Labour Market and Productivity
Bullock said the labour market has eased less than anticipated but more tightening is likely to be needed for inflation to get back on target. Domestic demand and labour market conditions are easing as intended to push the economy back towards balance, she added.
Weak productivity growth continues to be an inflationary pressure, and this makes it harder for the RBA to meet its goals of price stability and full employment, Bullock said.
RBA Ready to Act
Bullock argued policy cannot solve Australia’s productivity malaise which has continued to stifle economic growth and real wage increases.
The Reserve Bank is best off focusing on keeping inflation low and stable while supporting sustainable full employment, she added. Bullock also stated that the RBA Board is ready to raise the cash rate higher again if necessary to meet its mandate.
Source: Capital Brief
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