Philip Lowe: A narrow path

Address by Mr Philip Lowe, Governor of the Reserve Bank of Australia, at the Morgan Stanley 5th Australia Summit, Sydney, 7 June 2023.

The views expressed in this speech are those of the speaker and not the view of the BIS.

Thank you very much for the invitation to join Morgan Stanley's Australian Summit. It is a pleasure to be able to join you.

This morning, I would like to discuss the narrow path the Reserve Bank Board is seeking to navigate.

That path is one where inflation returns to target within a reasonable timeframe, while the economy continues to grow and we hold on to as many of the gains in the labour market as we can. It is still possible to navigate this path and our ambition is to do so. But it is a narrow path and likely to be a bumpy one, with risks on both sides.

Today, I would like to talk about the importance of the destination – that is, a sustainable return of inflation to target – and our strategy for getting there, including the decision yesterday to increase the cash rate again. I will then turn to some of the factors that the Board is considering as it navigates the path back to 2–3 per cent inflation.

The return of inflation to target

Recent inflation readings have been the highest for more than 30 years (Graph 1). The reasons for this are well known. They include supply-side disruptions caused by the pandemic, Russia's invasion of Ukraine, and the large fiscal and monetary policy responses that supported economies during the pandemic.