Since 2006, the Governor of the RBA has given a speech to the Anika Foundation. These annual speeches have typically focused on longer term issues but they are capable of addressing issues which may have current relevance. In this year’s speech, RBA chief Philip Lowe talked about Australian demographics and current monetary policy, the former topic being a long-term issue for the bank and the latter a short-term issue.
The first part of his speech discussed demographics. As the median age of the Australian population has increased, so has the participation rate of older Australians. “In particular, the participation rates for men and women aged over 55 have increased significantly over the past two decades or so.”
he came to the second part of his speech covering current monetary policy, he repeated several points which have been made in speeches and the minutes of RBA Board meetings. Unemployment is likely to fall below 5% gradually and inflation is expected to increase slowly, although headline inflation is expected to dip in the September quarter. “The labour market is gradually tightening and it is reasonable to expect that this will lead to a lift in both wages growth and inflation.”
He also repeated “the next move will be up” phrase which has almost become a mantra. ”So, in summary, we see reasonable prospects that the economy will record good growth, the unemployment rate will come down gradually and that inflation will increase over time. This is a favourable outlook.
“If this is how things evolve, you could expect the next move in interest rates to be up, not down. As the economy strengthens and income growth and inflation lift, it would be natural for interest rates to return towards more normal levels.”