It seems everybody wants to know what the Reserve Bank is going to do with interest rates, not least politicians and the Canberra press gallery itching for a federal election.
Might the RBA shove the economy into a recession with a 14th rate hike to ensure the inflation threat is firmly back in its box? Or, still more likely, will the central bank spare the many households struggling to repay debt with a rate cut this year?
The short answer, frustrating as it is for pundits and punters alike, is nobody knows.
That includes the RBA governor, Michele Bullock, as she freely conceded at her media conference on Tuesday after the central bank left interest rates unchanged for a fifth meeting in a row.
“I really genuinely feel that we’re in a quite a complex situation,” she said. “There are people out there who [are] much more definite – and they seem much more convinced that they know exactly what to do. It’s not as easy as that. It’s a challenging time.”
Nuance doesn’t sell media subscriptions, but analysts will find sufficient ambiguity in the RBA’s statement and Bullock’s comments to stay busy.
The next RBA board meeting, on 5-6 August, could be a “live” one, some instantly opined, in the sense of a possible increase in the cash rate to 4.6% from 4.35% now.
That confidence was inspired by minor word changes that implied a more “hawkish” tilt. Exhibit A: “Recent data … reinforced the need to remain vigilant to upside risks to inflation,” the statement read.
Asked about that, Bullock said: “No, you do not interpret vigilance for an interest rate rise is coming.”
Inflation figures for May land on 26 June, and a lot of attention will focus on whether there’s an uptick from the 3.6% rate recorded for both the March quarter and April alone. But the governor downplayed the partial nature of monthly figures, stating with some frustration that New Zealand was the “only other advanced economy I can think of” that relied on quarterly inflation figures to set interest rates.
Cool your jets, in other words, until the June quarter numbers land on 31 July. But even then, the RBA itself predicts a 3.8% headline figure so some uptick is already built into its rates assessment.
What Bullock will have by the next board meeting will be the central bank’s own updated forecasts, which might well deviate from Treasury. Recall that the treasurer, Jim Chalmers, flagged on the eve of last month’s budget that he thinks inflation could drop back to within the RBA’s 2%-3% target band by the end of 2024.
Whether the RBA thinks federal and state budgets (New South Wales being the latest) will add to inflation pressures or reduce them doesn’t seem to be Bullock’s fixation (even if some media outlets can’t let go).
“I don’t think it’s very helpful to think about the budgets in isolation,” she said, adding later: “We’re still hoping, forecasting to have inflation back down to the band by the end of 2025.”
As for speculation, Guardian Australia couldn’t help but ask whether Bullock shared her predecessor Philip Lowe’s concerns that climate challenges would add to future inflation challenges. Specifically, might decisions to ditch 2030 emissions targets and flick the switch to nuclear energy (as lately proposed by Peter Dutton) increase investor uncertainties and fuel inflation?
“That’s a very interesting medium-term question,” Bullock replied with a smile, stressing “we’ve got an inflation problem now”.
Bullock went on: “I don’t think the energy transition is something that’s stoking things right now.”
Whether that response appeases the friends of fossil fuels, we’ll have to wait and see.
