MNI RBA WATCH: Bullock Declines To Confirm Easing Bias

Governor Michele Bullock declined to say whether the Reserve Bank of Australia retains an easing bias after the Board held the cash rate at 3.6% on Tuesday, stressing that future moves will depend on incoming data, with the current level still viewed as slightly restrictive.

“We have to be data dependent,” Bullock told reporters following the largely-anticipated decision. All we’ve got to go on, because we don’t know what neutral is, is observing inflation, employment and what’s happening in the economy. We’ve had three cuts already this year, and we know there’s some impact starting to happen, but also more to come.” (See MNI RBA WATCH: On Hold, Eyeing Further Labour, CPI Data) “

The Board's statement and Bullock’s emphasis on data saw markets pare back expectations of a November cut to about 40% from about 50% before the meeting, with a cumulative 14 basis points of easing expected by year-end, down from 17bp. The RBA lowered the cash rate 25bp in August, taking this cycle’s easing to a cumulative 75bp. (See MNI RBA WATCH: Bullock Points Toward Further Cuts)

WEALTH EFFECTS

Bullock highlighted stronger wealth effects from rising housing and asset prices, which could lift consumption and support growth. However, the RBA could still lower rates if the labour market loosens further and supply-demand imbalances ease, she said, with decisions dependent on forecasts and forward-looking indicators.

Inflation returning to the 2-3% target band alongside stable employment represented “a positive situation” for the economy, she stated. “We’ve got employment around full employment, maybe a little tight, and that is all really good news. I can’t say what that means for next month, because it is going to depend on what the data tell us, and we're going to have to wait for that."

Bullock also outlined upside and downside risks. A stronger rebound in household spending, supported by higher real incomes and wealth, could drive a more robust recovery. "If that means we don't lower interest rates further, then I wouldn't say that's necessarily a bad news story." 

Conversely, lingering global uncertainties and weak consumer confidence could weigh on growth and jobs, she noted. "We know that consumer confidence is still a little bit on the low side, so it's possible that upside doesn't eventuate... and that affects the employment market. That would have different implications potentially for monetary policy." 

The labour market has eased but remains relatively tight, with the unemployment rate steady at 4.2% in August, she continued, adding that forward indicators, such as vacancies, did not point to large-scale layoffs. 

MONTHLY CPI

Bullock welcomed the publication of full monthly CPI data set to launch in November, but reiterated the Bank's preference for quarterly results, noting the new series would require a transition period as seasonal patterns are established.

The Australian Bureau of Statistics currently provides a limited monthly CPI indicator, which the RBA has repeatedly labelled volatile. The Bank will continue to focus on the quarterly trimmed mean as its preferred measure of underlying inflation, Bullock said.