(Bloomberg) -- Australian central bank chief Philip Lowe said generating sufficient employment will probably be more of a challenge for his nation than containing inflation in the years to come.
“The board wants to do what it can, with the tools that it has, to support the national effort to reduce unemployment,” the Reserve Bank of Australia governor said in an evening speech in Sydney Monday. “So that is our focus,” adding they still remain committed to hitting its inflation target.
Lowe’s address spanned the state of the economy -- assessed as better than many other nations -- and policy, where he noted fiscal measures have taken the lead over the bank’s own policy. The government’s goal of bringing unemployment comfortably under 6% before shifting to budget repair is a version of forward guidance, he said.
Australia’s central bank continues to call the struggle against unemployment a national priority. Last week it cut rates to 0.10% and announced a A$100 billion ($72.8 billion) program to buy longer-dated bonds to complement its three-year yield curve control.
Lowe said the “gravitational pull” of easing by other central banks globally “has been very strong” and the RBA responded to this by also lowering its policy rate.
“If our interest rates were higher than in the major countries there would be stronger inflows into Australian dollar assets and this would put upward pressure on our exchange rate,” he said. “In turn, this would make it harder to make the needed progress on jobs.”
Australia’s unemployment rate probably climbed to 7.1% in October from 6.9% a month earlier, economists predicted ahead of data Thursday. The RBA expects the jobless rate to climb to a bit under 8% in the period ahead before slowly coming back down.
The governor acknowledged in his speech that it made sense following a global pandemic that people and firms would become more risk adverse. Yet, increased apprehension would reinforce the worrying trend of ebbing dynamism.
“In an uncertain world, it can be hard to take on risk and there can be a natural tendency to avoid new risks,” Lowe said. “But, if businesses are to seize the opportunities that are out there to grow and to increase Australia’s productive capital base, some degree of risk taking is necessary.”
That said, the central bank will be “watching carefully” how people adjust their portfolios as they search for yield in a low interest rate environment,” he said.
Lowe reiterated that the RBA wouldn’t be adjusting rates until actual inflation is sustainably within its 2% to 3% target and noted the shift in relative weight given to jobs over inflation in policy setting.
“The challenge facing Australia over the next few years is much more likely to be the creation of jobs, rather than controlling inflation pressures,” he said.
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