RBA’s Lowe: It is unclear how high interest rates will go

In his first appearance after the 50 bps June interest rate hike, Reserve Bank of Australia (RBA) Governor Dr. Phillip Lowe warned that Australians should be ready for significant interest rate hikes in the balance of this year.

Key quotes

 “The RBA would do "what's necessary" to get inflation back to between 2 to 3 percent.”

"It's unclear at the moment how far interest rates will need to go up to get that." 

"I'm confident that inflation will come down over time but we'll have to have higher interest rates to get that outcome."

it was "reasonable" to think interest rates would reach about 2.5 percent at some point.” 

"I say that because the midpoint of our inflation target is 2.5 percent, so an interest rate of 2.5 percent in inflation-adjusted terms is really an interest rate of zero, which in historical terms is a very low number.”

"How fast we get to 2.5 percent, indeed whether we get to 2.5 percent, is going to be determined by events."

"Sometimes my comments get interpreted as me having made a promise, or a very strong statement, that interest rates would stay where they were to 2024. In our own communication, in our own way of thinking, it was very much a conditional statement," he said.

"The economy didn't evolve as we expected, it's been much more resilient and inflation's been higher and we thought we needed to respond to that."

"We're not worried that declines in housing prices will affect the banking system.”

"We're expecting the Australian economy to continue to grow pretty strongly over the next six to 12 months. There's still a bounce-back from all the COVID restrictions."

Market reaction

AUD/USD is failing to capitalize on somewhat hawkish comments from Governor Lowe.

At the time of writing, the aussie is trading at 0.6925, modestly flat on the day. The pair almost erased its recovery gains, as risk sentiment turns sour in European trading.