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OECD tells RBA to keep a close eye on inflation

 — 1 minute read

The OECD believes the RBA may need to tighten monetary policy faster than it is currently anticipating.

The Reserve Bank of Australia has been advised to exercise vigilance in respect to signs of rising inflation, with the Organisation for Economic Co-operation and Development (OECD) cautioning the country’s central bank may need to tighten monetary policy faster than it is currently anticipating.

In its latest economic outlook, the OECD pointed to Australia’s continued economic recovery, which has recently been accelerated by the removal of strict COVID containment measures in NSW and Victoria.

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The international think tank projected Australia’s real GDP growth could hit 3.8 per cent at the end of 2021, before rising further to 4.1 per cent in 2022 and contracting slightly to 3 per cent the year after.

The expectation, according to the OECD, is that as the vaccinated population returns to work, the labour market recovery will drive household consumption, aided by the recent temporary increase in government support and the gradual decline of the household saving ratio.

The full reopening of international borders is also seen to eventually boost exports and support the labour market recovery as tourism resumes and more foreign workers are allowed to enter the country.

But, looking forward, the OECD urged Australia to focus policies on enabling resource reallocation.

It noted that given “some structural changes that have occurred during the pandemic”, resource reallocation should be promoted, including through occupational licensing reforms and changes to land use regulations that more easily allow land to be repurposed.

It also judged that further fiscal support may be needed if the recovery falters, urging the government to lay out a “clear medium-term fiscal strategy” with well-defined targets and timeframes.

“Now is also an appropriate time for a review of Australia’s monetary policy framework,” the OECD said.

Reiterating calls for a review of the RBA, the OECD referred to a prolonged episode of undershooting inflation targets, the new monetary policy tools that were deployed during the pandemic and the changed environment for macroeconomic management.

Earlier this year, Treasurer Josh Frydenberg backed the OECD, noting he was open to a review, but one that would likely have to take place post-election.

 

OECD tells RBA to keep a close eye on inflation

The OECD believes the RBA may need to tighten monetary policy faster than it is currently anticipating.

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Maja Garaca Djurdjevic

Maja Garaca Djurdjevic

Maja's career in journalism spans well over a decade across finance, business and politics. Now an experienced editor and reporter across all elements of the financial services sector, prior to joining Momentum Media, Maja reported for several established news outlets in Southeast Europe, scrutinising key processes in post-conflict societies.

 

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