14 OCTOBER 2020
The RBA does not expect to be increasing the cash rate for at least three years, Dr Philip Lowe, the RBA governor advised today.
The governor advised the board had pivoted its view on the timing vis a vis its inflation and full employment settings.
Lowe advised the central bank will now be putting a greater weight on actual, not forecast, inflation.
"We do not expect to be increasing the cash rate for at least three years," he advised in a speech dubbed The recovery from a very uneven recession.
"Over recent months, our communication has stated that the Board will ‘not increase the cash rate target until progress is being made towards full employment and it is confident that inflation will be sustainably within the 2–3 per cent target band’.
"It might seem strange to some that we are even talking about the day that interest rates increase, given that it is a long way off. But expectations about future interest rates affect people's decisions and asset pricing, so we seek to be as transparent as we reasonably can.
"In today's world, things are much less certain. So we will now be putting a greater weight on actual, not forecast, inflation in our decision-making.
"In terms of unemployment, we want to see more than just ‘progress towards full employment’.
"The Board views addressing the high rate of unemployment as an important national priority.
"Consistent with our mandate, we want to do what we can do, with the tools we have, to ensure that people have jobs.
"The Board will not be increasing the cash rate until actual inflation is sustainably within the target range.
"So we do not expect to be increasing the cash rate for at least three years."
The RBA governor advised the policy response to the pandemic has been central to getting the Australian economy through the past six months in better shape than the economies of many other countries.
In previous downturns, it was monetary policy that played the leading role, but this time it has been fiscal policy that has taken the lead.
This switch is entirely appropriate given the pandemic and the low interest rate world that we are living in.
The recent Budget provided welcome further support to the economy, Dr Lowe noted.