Law 1.1 of the rules on monetary policy states the Reserve Bank must keep inflation at between 2 and 3 per cent, “on average, over time”.
The task had got away from Philip Lowe and the RBA board as consumer prices rose by almost 8 per cent last year.
Inflation may be heading down, but Loweball involves some frantic rhythms: a barrage of aggressive strokes followed by a pause, a single, then another pause, after Tuesday’s decision to keep the cash rate steady at 4.1 per cent.
Lowe & Co want to appear as ruthless as monetary players come, again vowing to do “what is necessary” to crush their errant opponent into submission without burning to ashes the post-pandemic gains in employment.
As in cricket, that means watching and waiting; having taken stock of the run rate, then adjusting to the conditions, there appears to be “uncertainty surrounding the economic outlook” in the board’s view.
It’s not a declaration.
Right now, the signals are all over the place, shouts from a restless in-crowd of “hike, hike, hike” amid a low murmur in the outer of “hold, hold, hold”.
Monetary policy is not an equal opportunity enforcer.
People without mortgages, most likely older and wealthier, may have seen a rise in their living and leisure costs but nothing like the brutal assault on the finances of workers in the early stages of career, home ownership and parenting.
In his policy statement, the RBA governor recognised “a painful squeeze” on some, but said this was a deliberate tactic.
After a dozen rises in the central bank’s cash rate target from May last year, amounting to four percentage points, Lowe said the game plan was working: supply and demand were in a “more sustainable balance”.
Wages growth had picked up, but was still consistent with the inflation target as long as productivity growth picks up.
That’s a big proviso.
Unlike old Jonny B leaving the crease, the RBA maintains it is alert to the risks.
It’s not taking anything for granted and is trying to ensure that expectations of ongoing high inflation do not feed into larger increases in wages and prices, given how limited the capacity is from Australia’s economic tail.
Lowe believes the nation can avoid the hard landing of a recession, that the economy can continue to grow as inflation returns to the comfort zone, but he again conceded the path to victory was a “narrow one”.
In determining its next move, the RBA board will be paying close attention to the weather and scoreboard: developments in the global economy, trends in household spending, and forecasts for inflation and the labour market.
But the RBA governor said there would be no surrender in the board’s pursuit of its mandate, just hard and fair play under darkening skies.
“Some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable timeframe,” Lowe said.
“But that will depend upon how the economy and inflation evolve.”
Same old RBA, always hedging.
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