Australia’s incoming central bank governor Michele Bullock said that policymakers may need to raise interest rates further, reinforcing that decisions will be taken on a month-by-month basis until 2024.
(Bloomberg) — Australia’s incoming central bank governor Michele Bullock said that policymakers may need to raise interest rates further, reinforcing that decisions will be taken on a month-by-month basis until 2024.
Responding to a question after she delivered a speech at the Australian National University in Canberra on Tuesday, Bullock said inflation is “still too high in Australia” and her first priority after taking the helm at the Reserve Bank is to keep bringing it down.
“We may have to raise interest rates again, but we’re watching the data very carefully,” said Bullock, who is currently deputy governor and takes over the top job in mid-September. “And we’ll be taking decisions for the time being until next year at least month by month.”
The RBA appears to be approaching the end of its tightening cycle after 12 hikes to bring the cash rate to 4.1%, the highest level since April 2012. Bullock’s comments are aligned with those of current Governor Philip Lowe, suggesting a degree of continuity on the monetary policy front.
“I’m reluctant to give any sort of predictions on how long interest rates might have to stay high,” Bullock added. Inflation “is coming down and we’re forecasting it to continue to come down, but it’s still too high. So first priority is still to maintain a focus on bringing inflation back down to target.”
Earlier, in her speech titled ‘Climate Change and Central Banks,” Bullock highlighted that climate-related trends could cause central banks globally to re-examine the relative merits of flexible inflation targeting.
The RBA’s mandate includes ensuring CPI is within a 2-3% band over a “reasonable timeframe.”
“The RBA Review considered this question but found that flexible inflation targeting had served the bank well and recommended its continued use,” Bullock said in the annual Sir Leslie Melville Lecture. “Nevertheless, I expect that debate will continue.”
The RBA, along with other members of the Council of Financial Regulators, is working to create a framework to enable market participants to manage their climate-related risks and opportunities, which will support the transition to a lower emissions economy, Bullock said.
Current priorities include:
- Supporting the government in the implementation of standardized, internationally aligned climate-related financial disclosure requirements for large businesses and financial institutions
- Overseeing the development of an Australian sustainable finance taxonomy and coordinated strategies to prevent greenwashing
- Strengthening international engagement on sustainable finance
Bullock said there were still uncertainties around how the climate will change and how this will impact the economy and financial system. It is also difficult to predict how green technologies would evolve and the speed with which climate, economic and social systems adapt.
The speech comes just days after a government report found that Australia could face economic losses of as much as A$423 billion ($274 billion) in reduced productivity if global action fails to halt extreme climate change.
Australia is one of the world’s biggest fossil fuel exporters, which also makes it one of biggest per-capita polluters. The ruling Labor party has pushed to reverse the nation’s reputation as a climate laggard, including imposing emissions targets of 43% off 2005 levels by 2030 and increasing funding for the transition to renewable energy.
(Releads with comments from Q&A.)
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