For several months now, the Reserve Bank of Australia (RBA) has been communicating that, when it comes to interest rate policy, it would rule nothing in or out. The message was that inflation was slowly heading back to target and the RBA was prepared to be patient. It did not want to speed up the return to lower inflation at the cost of pushing Australia into recession. Both upside and downside risks meant a higher than usual level of uncertainty, but these were roughly balanced.
We have always known that returning inflation to target was going to be a difficult act. In the past, episodes of high inflation have typically been dealt with by recession, including the now infamous “recession we had to have” in the early 1990s. The RBA has talked for a long time about a “narrow path”, which the current governor, Michele Bullock, worried a few months ago had become even more narrow. Achieving a “soft landing” was always going to be something of an economic miracle.
