Speech Summary Inflation and Monetary Policy
Address to Citi's 8th Annual Australian & New Zealand Investment Conference
The speech examines the low inflation outcomes across much of the world including Australia, the implications of this environment for the Bank's policy framework and recent monetary policy decisions.
It notes that inflation in advanced economies has been running noticeably below the long-term average, reflecting a combination of factors – excess capacity, lower commodity prices and perceptions of reduced pricing power. In Australia, the factors holding inflation down are expected to continue for a while yet. However, they are unlikely to persist indefinitely as domestic demand should gradually strengthen. The speech says that the Bank's central forecast remains for inflation in Australia to pick up over the next couple of years, but for inflation to be nearer to 2 per cent, than 3 per cent at the end of this period.
The speech makes clear that the Bank's monetary policy frameworks centres around a flexible inflation target that aims to deliver an average rate of inflation of between 2-3 per cent over time and in a way that best serves the public interest. It goes on to say that there are two factors of particular prominence when considering public interest: employment and the stability of the financial system.
On decisions to cut the cash rate this year, the speech notes that the Bank took into account a number of factors including international capital flows, exchange rates, the impact on savers, household balance sheets as well as developments in the housing market. Going forward, it emphasises that the Bank will continue to pay close attention to the incoming flow of economic data including inflation.