Dow Jones Newswires: RBA governor says Australia’s economy can achieve a soft landing

Dow Jones Newswires: RBA governor says Australia’s economy can achieve a soft landing

SYDNEY — Despite the fastest interest-rate increase in history, Australia’s resource-rich economy still stands some chance of avoiding recession and achieving a soft landing, Reserve Bank of Australia Gov. Philip Lowe said Wednesday.

In testimony before the Australian Senate, Lowe said while wage growth remains relatively subdued and inflation expectations stay anchored, an economic contraction might not come about in the future.

“If wage outcomes stay in a reasonable ballpark, then I think we can manage what I think is a fairly soft landing,” he said.

The RBA expects wage growth to peak around 4.0% in the near-term, well below that of rates seen in other major economies.

Still, risks to the economy include the possibility that employers will award wage increases that match the current 7.8% on-year pace of inflation, Lowe said.

If that were to happen, it would trigger a damaging wage price spiral and lock in an even higher rate of inflation, he said.

“At the moment, we don’t really see evidence of that occurring… but there are risks here,” he said.

The RBA has raised the official cash rate by 325 basis points since May last year to combat the biggest surge in inflation in 32 years.

Lowe described the current inflation rate of 7.8% in 2022 as “way too high.”

The Australian Bureau of Statistics will publish fourth-quarter wage growth data in a few weeks.

Lowe said the peak in interest rates hasn’t yet been seen, and that he wasn’t certain where that would be, adding that he didn’t want to drive the economy into a recession.

Lowe said the goal would be to retain some of the recent gains in the job market, which included a fall in the unemployment rate to its lowest levels in nearly 50 years.

“We have an open mind.. ..I don’t think we are at the peak yet (in interest rates). How far we have to go up, I don’t know,” he said.

With pain rising across Australia’s highly-indebted mortgage market as interest rates have increased, Lowe has faced calls for him to resign in recent weeks.

Treasurer Jim Chalmers has failed to publicly endorse Lowe, telling reporters that all options were on the table in terms of the future of the RBA.

Still, Lowe said he would complete his seven-year term as governor, which concludes in mid-September.

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