Speech Summary Economic Update
The Econometric Society Australasian Meeting and the Australian Conference of Economists
The speech looks at some key features of the current economic outlook from both a domestic and international context. It then goes on to articulate some of the communication challenges that the economic climate poses for policymakers.
It notes that in the current ‘period of stability’ in the cash rate, markets and commentators focus more keenly on the details of how the Bank communicates its view of the economy and its evolving policy thinking. The speech describes the evolution of the language in the monetary policy statements as new economic information has come to light. And it sets out the intended message behind changes in the Bank's language. In particular it indicates that the inclusion of guidance that interest rates might experience ‘a period of stability’ was intended to signal that the Bank's Board was not thinking about raising the cash rate imminently. It goes on to consider how the language about the Board's expectation of policy might continue to evolve. The speech then suggests that well in advance of any consideration of increasing interest rates, it would be sensible for the Board to no longer reference a future ‘period of stability’ and return to language that the stable policy settings ‘remained appropriate’.
Moving on, the speech looks at some of the issues in communicating the Bank's views on the exchange rate. It reaffirms that the Bank believes that the historically high exchange rate is still exerting ‘acute pressures’ on trade-exposed sectors of the Australian economy. And it suggests that, in the Bank's view, ‘investors are underestimating the likelihood of a significant fall in the Australian dollar at some point’. Finally, on communication, the speech outlines how the Bank explains its concerns about aspects of the housing market. And it indicates that those, and other financial stability issues have been ‘given due weight’ in deciding the interest rate path that the Bank's Board has chosen.