Assume inflation stickiness due to weaker supply, labor market tightness
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On Monday, Reserve Bank of Australia (RBA) Deputy Governor Andrew Hauser spoke at the Economic Society of Australia Business Lunch in Brisbane. Key quotes Economic forecasts are subject to huge uncertainty. Assume inflation stickiness due to weaker supply, labor market tightness. But spare capacity could easily be much higher, or much lower than we assume. Assume unemployment will rise only slowly, but risk of faster increase. Assume household consumption to rise in line with real incomes. Risk consumption could rise more strongly, in part due to increase in wealth. Uncertain how far and fast savings rate might rise. Market reaction AUD/USD is clinging to moderate gains following these above comments. The pair is currently trading 0.20% higher on the day at 0.6585. RBA FAQs The Reserve Bank of Australia (RBA) sets interest rates and manages monetary policy for Australia. Decisions are made by a board of governors at 11 meetings a year and ad hoc emergency meetings as required. The RBA’s primary mandate is to maintain price stability, which means an inflation rate of 2-3%, but also “..to contribute to the stability of the currency, full employment, and the economic prosperity and welfare of the Australian people.” Its main tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will strengthen the Australian Dollar (AUD) and vice versa. Other RBA tools include quantitative easing and tightening. While inflation had always traditionally been thought of as a negative factor for currencies since it lowers the value of money in general, the opposite has actually been the case in modern times with the relaxation of cross-border capital controls. Moderately higher inflation now tends to lead central banks to put up their interest rates, which in turn has the effect of attracting more capital inflows from global investors…
Filed under: News - @ August 12, 2024 3:24 am