Eoin Treacy's view -
Australian central bank chief Philip Lowe’s move to emphasize current inflation rates rather than projections suggests the economy will be allowed to run hotter with interest rates staying lower for longer.
Lowe conceded that assessing the outlook is problematic when inflation dynamics aren’t well understood and the world is so uncertain.
“We will now be putting a greater weight on actual, not forecast, inflation in our decision-making,” Lowe said, outlining the RBA’s latest thinking on prices in a speech on Thursday that hinted at further easing to come.
Annual inflation has averaged 1.7% since Lowe took the helm at the Reserve Bank of Australia in 2016, versus a target of 2%-3% over time, and has now dropped below zero.
Central banks have no choice but to pursue inflation with every tool they have available to them. Not only has the pandemic unleashed massive uncertainty, but their is no plan for how the debt taken on to combat it will be repaid.
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