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The RBA’s Lowe says wages aren’t the only determinant of inflation, Bloomberg’s policy says

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© Bloomberg. Philip Lowe, Governor of the Reserve Bank of Australia (RBA), gave his speech in Sydney (Australia) on Wednesday 10 March 2021 at the AFR Summit. sending lower yields, as he reiterated that interest rates are unlikely to rise until at least 2024.

(Bloomberg) – Australian wages will need to grow “by something like 3 points” in the midst of the central bank’s 2-3% target to keep inflation in check, Governor Philip Lowe said, adding that it will not be the sole determinant of price. pressures and, at the same time, politics.

“On the contrary, we are using wage growth as a guide to assess progress towards our goal and whether inflation is sustainably within the target range,” Lowe said in a speech Tuesday. “As we get closer to that goal, you can expect us to provide more guidance, including inflation forecasts.”

His comments call the markets to question the humble attitude of the Australian Reserve Bank, which is likely to keep rates low at 0.1% for about two more years. The RBA leader, like opponents around the world, is looking into whether the recent price acceleration is temporary or more permanent.

Last month’s data showed that core inflation returned to the RBA target for the first time in six years in the third quarter. Wage data for the same period will be published on Wednesday and will further shape Australian policy forecasts.

“We still have a way to go,” Low said, stressing that inflation is only at the bottom of the target band. He noted that the trajectory of rising consumer prices is also important, as a slow rise could have different policy consequences for a significant rise.

The governor reiterated that it is “still credible” that the first increase in the cash rate will not be until 2024. This view is in stark contrast to market expectations, where overnight interest rate exchanges are expected to rise by at least three years and be an option. the fourth.

Lowe set a scenario where the inflation shock is more persistent and the labor market is tightening at a faster pace, building the case for a rate hike before 2024. But he pushed back again against betting on promotions next year.

“The latest data and forecasts do not guarantee a rise in the cash rate in 2022,” Low said. “The economy and inflation would have to be very different from our central scenario for the council to consider raising interest rates next year.”

© 2021 Bloomberg LP

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