Australia central bank scrutinising three factors that could sway policy

SYDNEY (Reuters) -Australia's central bank is examining three issues that could influence policy, including whether firms have changed how they set prices and whether the transmission channels for monetary policy have changed, a senior official said on Thursday.

"We are constantly curious about how the economy is shifting and changing beneath the surface, the drivers of these undercurrents, and what they collectively mean for policy settings," said Sarah Hunter, assistant governor at the Reserve Bank of Australia, at an event in Sydney.

The RBA has been surprised by an inflation surge in the last quarter, which has rendered its old price forecasts obsolete and dashed hopes for more policy easing after three cuts this year.

Policymakers are debating whether the current cash rate at 3.6% is sufficiently restrictive to return inflation back to the 2-3% target range.

One question relates to whether businesses have changed the way they set prices after the COVID-19 pandemic, Hunter said, adding the second issue is how to determine the supply capacity in the economy, including how close the labour market is to full employment.

The third puzzle the bank is trying to get a handle on is whether the transmission channels for monetary policy have changed in recent years, given the response in the housing market to rate cuts so far has been a little stronger than expected, she added.

(Reporting by Stella QiuEditing by Shri Navaratnam)