(Bloomberg) --
Reserve Bank of Australia chief Philip Lowe said a sustained jobless rate “in the low 4s” would be considered maximum employment, while reiterating that any decision on interest rates will be driven by economic data, not the calendar.
The governor, in the text of a speech devoted to the labor market, set out the central bank’s latest thinking on the relationship between unemployment and wage growth. A key takeaway is his view that firms hiring offshore to deal with bottle-necks has helped limit pay gains.
“This hiring dilutes the upward pressure on wages in these hotspots and it is possible that there are spillovers to the rest of the labour market,” Lowe told the Economic Society of Queensland via an online Webinar Thursday. “In my view, this is one of the factors that has contributed to wages being less sensitive to shifts in demand than was once the case.”
The RBA is trying to push unemployment down toward 4% to try to spark wages growth across the economy and return inflation to its 2-3% target. The thinking behind the goal is that the current monetary and fiscal injection is the best chance to return price gains to more normal levels and rebuild policy rate firepower for future downturns.
Lowe reiterated some of his views from Tuesday’s rate decision, when the bank chose not to extend the horizon of its three-year yield target and pared back its quantitative easing program.
“The condition for an increase in the cash rate depends upon the data, not the date; it is based on inflation outcomes, not the calendar,” he said, adding that the RBA expects it will take until 2024 for inflation to be sustainably within the target range.
“The second is that the step-down in the RBA’s bond purchases from A$5 billion to A$4 billion a week does not represent a withdrawal of support by the RBA,” he added.
©2021 Bloomberg L.P.