RBA Governor Philip Lowe said he was prepared to tolerate inflation above the upper limit of the 2-3 per cent target range, while renewing the signal that Australia is still some distance away from its first rate hike.
"The approach we are currently taking while waiting for evidence does run the risk of inflation exceeding 3 percent for a period of time, but that risk is acceptable," Lowe said friday in response to questions on a parliamentary committee. "We think it's appropriate to take that risk."
The statement suggested that Lowe was sticking to his dovish stance, in stark contrast to the Fed and the Bank of England. Bond markets have responded: the gains previously hit by spikes in US inflation on 10-year Australian bonds have been more than half reversed.
But Lowe also reiterated in his semi-annual testimony that a rate hike later this year would also be "reasonable" if wage growth and inflation accelerate.
He said the RBA's patient decision was to test how much it could push the unemployment rate down — at 4.2 percent now — without putting pressure on rapid wage growth.
This article originated from the financial world
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