Australia’s central bank was “strongly committed” to returning inflation to the target range, Governor Philip Lowe said on Thursday as the country’s government considers a review of the monetary policy framework.
Reserve Bank of Australia (RBA) chief Lowe’s remarks come as the Australian Financial Review reported Treasurer Josh Frydenberg was assessing the central bank’s long-term inflation target of 2%-3%.
There have been calls for the RBA to lower the target given inflation has been running stubbornly below 2% for the last few years.
RBA Governor Philip Lowe on Thursday pushed back against the idea that central banks simply cannot achieve their inflation targets.
“We have always viewed the inflation target in the wider context, reflecting the broad mandate for the RBA set out in the Reserve Bank Act 1959. That Act was passed 60 years ago and has stood the test of time,” Lowe said in Sydney.
“We are not inflation nutters,” he added.
“Rather, we are seeking to deliver low and stable inflation in a way that maximizes the welfare of our society.”
The AFR reported any changes to the agreement would be “around the margins, if at all,” to ensure the statement was appropriate for current circumstances.
“I will be signing an agreement in due course, but am currently taking advice from Treasury, after which I will have a discussion with the governor,” Frydenberg was quoted as saying.
The central bank has cut interest rates twice since June, taking them to a record low of 1%, in a move to drive down unemployment and push up wages and inflation.
The RBA is hardly alone in struggling with persistently low inflation as central banks around the world are either already easing or on the way to adding more stimulus.
Analysts doubt the RBA would lower or widen the inflation target, say to 1%-3%, in part because markets would then assume that further rate cuts were less likely and push the Australian dollar higher.
Cementing those doubts, Lowe said “the Board is strongly committed to making sure we get there and continuing to deliver an average rate of inflation of between 2% and 3%.”
He also reiterated his call for more government action to provide additional policy support to prop up domestic demand.
A major plank of Prime Minister Scott Morrison’s May election campaign was to return the budget to surplus in 2019-20 and extra spending might endanger that promise.
Reporting by Wayne Cole and Swati Pandey; Editing by G Crosse and Sam Holmes