“I want to emphasize, however, that we are not on a pre-established path. and the job market, “he said.
“Many households have not experienced a period of rising interest rates. Households are also experiencing a decline in real incomes due to rising inflation and some of the big gains in house prices in recent years are recovering. “
“Given these various considerations, we will be closely watching household spending as we chart the path to 2 to 3 percent inflation.”
There has been some criticism of the bank for raising interest rates on people who sharply raised their debt levels due to the COVID-19 recession. The new average mortgage in NSW rose to an all-time high of $ 800,000, while in Victoria it has reached $ 650,000.
But Lowe said inflation should be controlled, which the bank now believes will reach around 7% in the December quarter before falling next year.
He said that while many of Australia’s inflationary pressures are currently being transmitted from abroad, internal factors are at stake, including strong growth in domestic spending.
“The council is committed to doing whatever it takes to ensure that inflation returns to the target range of 2 to 3 per cent over time,” he said.
“High inflation harms the economy, reduces people’s purchasing power and devalues people’s savings. It is also regressive, harming most of those who are less equipped to protect themselves. “
The bank also released a revision of its performance target policy on Tuesday, which it used during the recession to keep the public debt interest rate at 0.1 percent.
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For most of the recession, the bank was able to maintain these rates at 0.1%, but in recent weeks of the policy there was a sharp increase as financial markets began to assess the risk of higher inflation.
The review found that the end of the program was “messy” and caused damage to the RBA’s reputation.
Lowe said in retrospect, it could be argued that there was too much attention to downside risks during the COVID-19 recession that later influenced RBA policies.
He indicated that it was unlikely that the bank would use a performance target policy again in the same way.
“The council has not ruled out re-using a performance target in extreme circumstances, but considers the likelihood of doing so to be low,” he said. “The use of a performance target should somehow be evaluated against other policy options, including a bond purchase program. This program offers more flexibility, but carries other risks.”
Cut to the chase of federal politics with Jacqueline Maley’s news, opinion, and expert analysis. Subscribers can subscribe to our weekly Inside Politics newsletter here.