The Reserve Bank of Australia is taking a flexible approach to inflation targeting, according to its new governor, Philip Lowe, in his first major public speech.
“We have not been what some have called ‘inflation nutters’,” he told the House of Representatives Standing Committee on Economics.
“We have had a more balanced perspective, recognising that some degree of variability in inflation from year to year is both inevitable and appropriate.”
He said a flexible medium-term target was the best way to deliver low and stable inflation in a way that contributes to our other broad responsibilities, including employment and preserving financial stability.
“We want to ensure that we deliver an average rate of inflation in Australia of between 2% and 3% over time,” he said.
“It is in the public interest that we do this. It is also in the public interest that we pursue this objective in a way that promotes good employment outcomes for the country and preserves financial stability.”
Later, in response to questions, Lowe said it was “not particularly useful” to keep cutting interest rates in the hope that it will eventually work.
Official cash rates are at a record low of 1.5%.
In his main speech, Lowe said he expected the economy to continue to be supported by low interest rates and the depreciation of the exchange rate.
“Inflation is expected to remain low for some time, but then to gradually pick up as labour market conditions strengthen further,” he said.
He said that inflation was generally low globally and below most central bank targets.
“Some central banks have taken extraordinary actions, including large-scale money creation and setting negative policy interest rates,” Lowe said.
The monetary expansion elsewhere and the low rates on offer overseas have meant that foreign investors have found Australian assets, with their relatively higher returns, attractive.”