When Things Don’t Add Up At The RBA

The Reserve Bank held its cash rate at 4.35% for a sixth straight meeting on Tuesday and lifted its forecasts for inflation and economic growth. In her press conference after the policy decision, Governor Michele Bullock said there’s still a risk that inflation will take too long to return to target and said it’s too early to be talking about imminent easing. Core prices at 3.9% remain well above the bank’s target and its largely driven by non-discretionary spending such as insurance, education and housing rent.

It now sees underlying inflation easing to 3.5% by the end of this year, and then hitting 3.1% in mid-2025. The gauge is seen falling just shy of the 2.5% target mid-point at the end of the forecast horizon.

The governor did tell reporters that the board discussed a hike before deciding to pause again and said a tightening couldn’t be ruled out due to upside risk to inflation.

But as governor Bullock delivered her comments and answers at Tuesdays press conference, it became clear there are disconnects between inflation in Australia and other countries, a divergence between the bank and markets about the future trajectory of interest rates, a revision to how restrictive current interest rate settings are in Australia, and a problem with the impact of Government “support” in its broadest sense estimated to be circa $40 billion across federal and states, plus the tax cuts.

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Digital Finance Analytics (DFA) Blog
Digital Finance Analytics (DFA) Blog
When Things Don’t Add Up At The RBA
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Author: Martin North

Martin North is the Principal of Digital Finance Analytics

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