SYDNEY (Reuters) -Australia’s monetary policy faces an unusual challenge as the economy began recovering last year with demand still above potential output, a top central bank official said on Monday, suggesting little room for near-term policy easing.
In a speech at a UBS conference in Sydney, Reserve Bank of Australia (RBA) Deputy Governor Andrew Hauser noted that demand was “slightly” above potential output when GDP growth started to pick up last year, the tightest the economy has been in a recovery since the early 1980s.
That implies there is less room to grow the economy without generating inflationary pressures.
“That can still be consistent with bringing inflation back to target over the medium term. But achieving that goal will require policy to be restrictive enough to keep shrinking the gap over that period,” Hauser said.
“The absence of spare capacity is good…
