“Australia's top central banker on Tuesday flagged a lot more policy tightening ahead as rates were still 'very low' and it was important that higher inflation did not feed into public expectations and wage claims,” said Reuters as it quotes Reserve Bank of Australia (RBA) Governor Philip Lowe.
The news adds, “Reserve Bank of Australia (RBA) Governor Philip Lowe said price pressures continued to build both globally and domestically and inflation was now seen reaching 7% by the end of the year, up from a previous forecast of 6%.”
As we chart our way back to 2 to 3% inflation, Australians should be prepared for more interest rate increases.
The level of interest rates is still very low for an economy with low unemployment and that is experiencing high inflation.
I want to emphasize though that we are not on a pre-set path.
How fast we increase interest rates, and how far we need to go, will be guided by the incoming data and the Board's assessment of the outlook for inflation and the labor market.
It was important that inflation expectations remain anchored around 2-3% and that higher prices now did not feed through to expectations of rising inflation in the future.
Higher interest rates have a role to play here, by helping ensure that spending grows broadly in line with the economy's capacity to produce goods and services.
AUD/USD grinds higher
Following the hawkish comments from RBA’s Lowe, AUD/USD remains firmer, taking rounds to the intraday high near 0.6975 at the latest.
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