Philip Lowe: Monetary policy, demand and supply

Address by Mr Philip Lowe, Governor of the Reserve Bank of Australia, at the National Press Club, Sydney, 5 April 2023.

Central bank speech  | 
05 April 2023
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Thank you for the invitation to address the National Press Club once again. It is a pleasure to be here.

I would like to begin by explaining yesterday's monetary policy decision. I will also discuss the importance of returning inflation to target and the roles that both aggregate demand management and expansion of the supply side of the economy can play in maintaining low inflation.

Yesterday's monetary policy decision

At yesterday's meeting, the Reserve Bank Board held the cash rate unchanged at 3.6 per cent. This is after interest rates were increased at each of the previous 10 meetings (Graph 1). The decision to hold interest rates steady this month was taken to give the Board more time to assess the economic outlook and the impact of the increases in interest rates so far.

Since May last year, interest rates have been increased by 3Ā½ percentage points. This is a large increase over a short period and it has been difficult for many people. The first increases were necessary to withdraw the support provided during the pandemic. And then the more recent increases have been required to move monetary policy into restrictive territory to combat the highest rate of inflation experienced in Australia in more than 30 years (Graph 2). To be clear, the alternative to the recent interest rate increases would have been more persistent inflation and, ultimately, even higher interest rates and more unemployment.