RBA’s Lowe: Further increases in interest rates will be necessary over the months ahead

Economy has been very resilient; unemployment is low and economic growth is expected to be strong this year.

Inflation has picked up more quickly, and to a higher level, than was expected and there is evidence that labor costs are increasing more quickly.

Board is not on a pre-set path and will be guided by the evidence and data.

I acknowledge that this increase in interest rates comes earlier than the guidance the bank was providing during the dark days of the pandemic.

In making our decisions over coming months, we need to navigate through some considerable uncertainties.

We have no contemporary experience to guide us with how labor costs and prices in Australia will behave at an unemployment rate below 4 percent.

Economy is expected to grow strongly this year, with our central forecast being for GDP growth of a little above 4 per cent.

It is also relevant that households have much more debt than previously, and many households have never experienced rising interest rates.

Resilience of the economy means that the record low interest rates are no longer needed.

We will also continue to be flexible and responsive to changing circumstances.

We expect a further increase in the inflation rate as the effects of global developments wash through the year-ended figures.

Will do what is necessary to ensure that inflation outcomes are consistent with the medium-term inflation target.

Our central forecast – which is based on an assumption of further interest rate increases – is that underlying inflation will decline to the top of the target band in 2024.

This does not require an immediate return of the inflation rate to target.

We do need to ensure that the inflation rate tracks back to the target range of 2 to 3 percent over time.