"Indeed, the Board expects that some further tightening of monetary policy may well be needed to return inflation to target within a reasonable time frame." Headline consumer price inflation hit a three-decade high of 7.8% in the December quarter, far above the RBA's target band of 2-3%, though it has shown some sign of easing since. Lowe said pausing was consistent with past rate cycles when the bank moved quickly and then waited a while to assess the pulse of the economy, before deciding whether a further move was needed. Answering questions after the speech, Lowe said the Board would be looking at coming data on inflation, retail sales and jobs when deciding on rates at the May 2 meeting.
UNCERTAIN "We think we may well have to increase interest rates again, but we're not 100% certain of that, and the flow of data from month-to-month will determine whether we need to move higher." Financial markets imply only a slight chance of a hike in May and suspect the next move will be down, albeit not until late this year or early 2024. "The Board is conscious that monetary policy operates with a lag and that the full effect of the increases to date is yet to be felt," Lowe noted. "It is also conscious that there are significant economic uncertainties at the moment." Lowe said those uncertainties included the resilience of household demand in the face of rising mortgage rates, the evolution of wage and price setting behaviour and stress in the global banking system. "It is increasingly clear that the higher interest rates are having an impact on aggregate household spending," said Lowe, adding that the bank's forecast was for only slight growth in the March quarter. Lowe said high inflation had not been driven by excessive wage growth, nor by price gouging by businesses. "It is important that wage increases remain broadly consistent with the inflation target and that a widening of profit margins does not become a source of ongoing upward pressure on prices," he added. (Reporting by Wayne Cole and Stella Qiu; Editing by Sam Holmes & Shri Navaratnam)
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