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By James Glynn
SYDNEY–Reserve Bank of Australia Gov. Philip Lowe said Friday he wants to nudge the economy closer to full employment, even as that benchmark remains fuzzily defined.
RBA modelling suggests that full employment might be represented by a jobless rate somewhere in a high 3.0% to low 4.0% range. But the central bank will look to factors such as rising wages growth, rather than numbers produced by economic modelling, before responding with higher official interest rates.
Unemployment in December fell to 4.2%, according to the Australian Bureau of Statistics, and the RBA forecasts that it will fall to around 3.75% by the end of this year.
“If this comes to pass, it would be a significant milestone. Australia has not experienced unemployment rates this low since the early 1970s, almost half a century ago,” Mr. Lowe said in testimony to parliament.
Mr. Lowe acknowledged that there is a huge gap between his thinking about the need for interest rates increases and pricing in the financial markets, which currently expect five interest rates increases by this time next year.
Still, there was scope to be patient as inflation in Australia is still largely contained.
“I recognize that there is a risk to waiting but there is also a risk to moving too early,” Mr. Lowe said.
“Over the period ahead we have the opportunity to secure a lower rate of unemployment than was thought possible just a short while ago. Moving too early could put this at risk,” he said.
“The stronger the economy and the more upward pressure on prices and wages, the stronger will be the case for an increase in interest rates,” Mr. Lowe said.
Write to James Glynn at james.glynn@wsj.com
