Full Employment is Key Policy Goal, RBA's Chief Forecaster Says

By James Glynn

SYDNEY--Policy makers in Australia must remain set on achieving full employment, even as the economy continues to face pandemic-related risks, Luci Ellis, chief forecaster at the Reserve Bank of Australia said.

"The board remains committed to maintaining highly supportive monetary conditions. The aim of these policy settings is to support a return to full employment and inflation consistent with the target," Ms. Ellis told a business conference in Adelaide on Wednesday.

The comments come amid signs of full-blooded recovery for the Australian economy from a pandemic-induced recession a year earlier. The recovery has turned the debate among economists to the potential for the RBA to start raising interest rate much earlier than expected.

Ms. Ellis's comments suggest that there will be no rush at the RBA to wind in monetary stimulus.

Full employment is a precondition to achieve the rates of wages growth consistent with inflation being sustainably within the 2%-3% band, Ms. Ellis said.

"As economies move through recovery to the expansion phase, the focus naturally turns to sustaining that expansion. That means ensuring that demand continues to be supported for as long as spare capacity remains," she added.

The RBA's next policy meeting on July 6 is expected to significantly reshape the central bank's guidance, with it recognizing more fully that the economic recovery is emerging at a faster-than-expected pace.

RBA Gov. Philip Lowe is expected to signal that the central bank will begin the process of exiting its scheme of holding down the three-year government yields, while sticking to a program of fairly robust government bond buying.

As chief forecaster for the RBA through the pandemic, Ms. Ellis said the wild swings in output and demand have been a "humbling experience." Still, there are clear lessons to be drawn.

Topping the list is the idea that when there are big economic shifts, "people adapt," and when the crisis has eased, "people bounce back," she said. And with regard to support coming from monetary and fiscal policy, "people respond."

The RBA's forecasts for the job market published in February proved incorrect. A new set of forecasts due in August are likely to show expectations for unemployment revised down ever further.

Data last week showed the unemployment rate fell to 5.1% in May from 5.5% in April, with underemployment also falling sharply. The data prompted a number of economists to bring forward their forecasts for when the RBA will start raising interest rates to 2022, from 2023.

Write to James Glynn at [e-mail]

(END) Dow Jones Newswires

06-23-21 0018ET