Reserve Bank of Australia Governor Brock said that if inflation remains above the target level for an "unlimited" period of time, the central bank will strive to maintain a low unemployment rate. And warn households and businesses that interest rate easing will still take some time.

In a speech in Sydney, Reserve Bank of Australia Governor reiterated that the Monetary Policy Committee remains vigilant about the upward risks to inflation and monetary policy will need to remain sufficiently restrictive until CPI sustainably progresses towards the target range of 2% -3%. Since 2021, Australia's core inflation has been consistently higher than this range, although it has fallen from its peak of 3.9%, it is still dangerously high.

Brock said on Thursday, 'Over the past year, potential inflation has hardly decreased on a quarterly basis, and the committee remains vigilant about the upward risks'. 'High inflation ultimately requires disinflation, which may come with long-term costs to households by increasing the unemployment rate.'

Figure: Inflation remains above the Reserve Bank of Australia's comfort zone (the Reserve Bank of Australia may keep rates at a 12-year high this year) (blue line is cash rate, white line is year-on-year core inflation)

The chairperson stated that the Reserve Bank of Australia's committee is seeking to balance inflation within a reasonable timeframe while allowing as much recent growth in the Australian labor market as possible, with the current unemployment rate at a low of 4.2%. She said, 'Ultimately, it's important to remember that our full employment goal is not achieved by letting inflation persist indefinitely above the target level.'

Brock's speech focused on the risks of long-term high inflation and how the current situation disproportionately affects lower-income earners and young Australians. She reiterated the need to address this issue.

At the time of her statement, central banks in countries such as New Zealand and Canada have already started cutting interest rates, and the Federal Reserve is expected to launch its monetary easing policy this month.

Australia remains an exception during the tightening cycle of 2022-23, with a smaller increase in interest rates to ensure employment growth compared to other countries. The Reserve Bank of Australia has raised the cash rate to a 12-year high of 4.35%, about 1 percentage point lower than the United States.

After the speech, Block answered questions from the audience, mentioning that New Zealand's policies are more restrictive than Australia's.

She said, 'That being said, if inflation does not decrease, the best remedy may be that we will eventually have to impose more restrictions on the economy.'

Financial markets still expect the Reserve Bank of Australia to begin cutting interest rates later this year, but central bank officials have rejected this expectation. Block said on Thursday, 'It is too early to consider a rate cut now.' She reiterated comments from the press conference last month.

She said, 'Of course, the situation may change if the economic conditions do not develop as expected, and the committee will respond accordingly. But if the economic development is broadly in line with expectations, the committee expects no rate cuts in the short term.'

Block stated that the current restrictive policy setting is working to balance supply and demand, but domestic capacity pressures are still keeping prices high.

She said that the main drivers of the current inflationary increase are housing costs and market services, emphasizing that the latter has increased by 5.3% in the year ending the second quarter.

However, data released on Wednesday showed that Australia's economic growth remained lackluster in the three months ending in June, with consumers facing persistent low inflation. The central bank believes that the second quarter was the low point of economic slowdown and expects economic growth to rebound by 2025.