(Bloomberg) -- Australian central bank chief Philip Lowe said interest rates are likely to remain at a record low “for a while yet” while lamenting the local currency’s resilience.

“It is likely to be some time before we are at full employment and the inflation rate is comfortably within the target range on a sustained basis,” Lowe said in his opening statement to a parliamentary panel in Canberra Friday. “We are prepared to maintain the current monetary policy stance until these benchmarks are more clearly in sight.”

The governor, in his semi-annual testimony, also noted the currency’s resilience in recent years. He said policy makers had hoped that as the Federal Reserve tightened, it would drive the U.S. dollar higher and its Aussie counterpart lower. That, in turn, would spur local inflation and jobs and let the Reserve Bank of Australia start to normalize rates.

“That process has taken a lot of time to occur, it may be that it’s now occurring, although the Australian dollar has not moved that much,” the governor said, reflecting the 8 percent decline in the Aussie against the greenback in the past six months. “I still think a lower dollar would be helpful.”

Lowe signaled the economy will need to be generating higher household incomes and faster inflation before policy is tightened for the first time since 2010. He also highlighted global risks to Australia’s trade-reliant economy, including mounting protectionism in the U.S. and the Trump administration’s decision to inject stimulus into an American economy already running at full capacity.

“Financial markets remain relaxed about the implications of this for inflation. I am less relaxed,” he said of the U.S. tax cuts. “One can’t rule out the possibility that the Federal Reserve will have to withdraw monetary accommodation more quickly than currently projected, with possibly disruptive consequences in financial markets.”

The RBA is relying on a tightening labor market -- the jobless rate is 0.3 percentage point off estimated full employment of 5 percent -- to drive wage growth and rekindle inflation. Lowe wants to see consumer-price growth back around the midpoint of its 2 percent to 3 percent target.

Gradual Progress

Data this week showed slightly faster wage growth and slightly lower unemployment.

“Taken together, these data are consistent with our view that wages growth and inflation will pick up gradually over the next couple of years,” he said. “The number of job vacancies, as a share of the labor force, is at a record high. Firms are reporting that it is harder to find workers with the necessary skills, and survey-based measures of hiring intentions remain positive.”

RBA liaison with companies indicates “larger wage increases for certain occupations where workers with the necessary skills are in short supply. We expect that we will hear more such reports over time,” he said. Still, traders see little chance of a rate hike in the next 12 months.

Lowe described the cooling of house prices in Sydney and Melbourne as a welcome development. The gains of recent years “were not sustainable and were posing a medium-term risk to our economy,” he said. The governor added that such a retrenchment against the backdrop of a strong labor market, rates at 1.5 percent, above-average economic growth and a strong global outlook was fortunate timing.

“All these things are helping with the adjustment,” he said. “We are nevertheless continuing to keep a close eye on housing market developments across the country.”

‘Appalled’

Elsewhere, Lowe said he was “appalled” at the scandals that had emerged from a wide-ranging public inquiry into Australia’s finance industry.

“The whole process is really showing the benefit of sunlight,” he said. “Sunlight is acting as a very good disinfectant here.” He said the inquiry has exposed “deficiencies” in the three core foundations of finance: trust; delivering service; and good risk management.

Lowe said the result had been a tightening in lending standards, but voiced fears there might be overreaction because of the terrible nature of some of the findings that could start to restrict the availability of credit.

The governor also turned his attention to drought conditions that have spread to New South Wales after the state had its driest July since 2002. Concerns about Australia’s crop as well as dry spells in producers from Russia to Germany helped send wheat prices in Chicago surging this year. The impact on the economy would be significant if the drought becomes as bad as conditions experienced at the turn of the century.

The House Economics Committee that questioned Lowe was shorthanded today with only six of 10 members attending the hearings. That, together with the steady nature of policy and the Australian economy story, led to proceedings wrapping up 40 minutes short of the allotted three hours.

To contact the reporter on this story: Michael Heath in Sydney at mheath1@bloomberg.net

To contact the editors responsible for this story: Nasreen Seria at nseria@bloomberg.net, Chris Bourke, Edward Johnson

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