SYDNEY: A top Australian central banker on Wednesday reiterated that a wide range of information suggested inflation was likely to remain low over the next couple of years, in part due to spare capacity globally.
The comments underline the message from the Reserve Bank of Australia's (RBA) April policy meeting that the country's low inflation would provide scope for a further cut in interest rates if needed to support the economy.
Australia's underlying inflation is running near the floor of the RBA's long-term target band of 2 to 3 percent.
Speaking on economic forecasting at the central bank, RBA Assistant Governor Christopher Kent said a range of statistical sources and models showed that offshore factors were combining to keep inflation and wages subdued.
"The models suggest that these influences on Australian inflation are typically quite persistent, which reinforces the message from other sources that inflation is likely to remain low for some time," said Kent, who heads the RBA's economics unit.
Government data on inflation for the first quarter is due later in April and there has been market speculation that a low reading would open the door to a policy easing, perhaps as soon as the May policy meeting.
However, Kent noted that all economic forecasts were subject to much uncertainty and that markets often placed too much emphasis on the RBA's central estimates for everything from inflation to economic growth.
Seeking to bolster its forecasting efforts, the central bank in 2014 commissioned an external review of its processes and has been adopting some of the recommendations, Kent said.
Since the start of 2015, the bank has conditioned its forecasts on the assumption that the cash rate would move broadly in line with financial market expectations. Previously it had assumed the cash rate would remain unchanged.
It now provides forecasts for unemployment and a more comprehensive explanation of the uncertainties around all its forecasts.
Kent said the RBA had also established a Macroeconomic Modelling section to expand use of full-system models - those that account for the simultaneous responses of a large number of key variables to unexpected developments.
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