By Wayne Cole
SYDNEY, Feb 11 (Reuters) – A top Australian central banker said on Wednesday inflation was too high and policy makers were committed to doing whatever was necessary to bring it to heel, pointing to the strength of credit growth as a sign rates were not restrictive.
Speaking at a business lunch, Reserve Bank of Australia Deputy Governor Andrew Hauser said many parts of the economy were doing well but growth as a whole was bumping up against capacity constraints.
“Inflation at this level is too high, and we all remember the cost excessively high inflation poses,” said Hauser. “We will continue to do whatever is necessary to ensure that inflation does return to the target band.”
The RBA raised its cash rate last week by a quarter point to 3.85%, reversing one of three cuts made last year, and left the door open to further tightening should inflation not subside as forecast.
Markets imply around a 70% chance rates will rise to 4.10% at the RBA’s May meeting, following the release of first-quarter inflation figures.
Core inflation picked up to 3.4% in the fourth quarter, the fastest pace in over a year and above the RBA’s own forecasts. That led the central bank to revise up the expected peak for core inflation to 3.7% for this year, well above its long-run target range of 2% to 3%.
Recent data has reinforced the case of a capacity-restrained economy, with a surprise fall in the unemployment rate to a seven-month low of 4.1% in December suggesting the labour market may have started to tighten again.
Robust consumer spending, record-high housing prices and easy credit for households and businesses also implied financial conditions might not be as restrictive as the RBA thought.
Indeed, figures out on Wednesday showed mortgage lending jumped 9.5% by value in the fourth quarter, on top of a similarly hot result the previous quarter, while loans for investment climbed to a record.
(Reporting by Wayne Cole and Stella Qiu; Editing by Muralikumar Anantharaman and Shri Navaratnam)
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