Australia’s central bank is rightly refusing to take the soft option that would risk forcing it to confront less palatable choices later. The political debate needs to face up to this.
a prudent course on interest rates, keeping the cash rate on hold at 4.35 per cent and declaring that monetary policy “will need to be sufficiently restrictive” until it is confident that inflation is headed back into its 2 per cent to 3 per cent target.concluded last week, the March quarter Consumer Price Index, while not being so bad as to demand an immediate further cash rate increase, suggested that the deceleration of growth in consumer prices appeared to have stalled around 4 per cent.
Less than a year ago, a target of late 2026 had seemed to then-governor Philip Lowe to be an improbably long time for inflation to be brought under control. “The public would be asking, ‘are they serious?’ ” he said. While a near-term cash rate increase may be avoided, the “higher for longer” rate scenario set out by the Labor-appointed governor and a board, also including Labor appointees, may frustrate the government’s political timetable.
But the worrying apparent reduction in the economy’s supply-side capacity points to deeper issues. These include that the acceleration in wages growth, much touted by the former workplace minister who has been promoted to protecting the nation’s borders, remains inconsistent with inflation returning to target unless the economy’s lagging productivity performance recovers.
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