Board Discussed Rate Hike And Will Tighten If Have To

Governor Bullock said that both a rate hike and holding were discussed at the May meeting and the Board hopes that it won’t have to hike but it will if it has to. Currently the Board sees risks as “reasonably balanced” but needs to monitor upside inflation risks, especially as the costs of an overshoot exceed those of an undershoot. Policy is restrictive and the insurance taken out in November has meant the RBA can watch and wait.

• Bullock said that the Board thinks they have it right but there are significant uncertainties. It will move again if it has to for inflation to return to target. At the moment looks like there will be a prolonged hold.
• The OCR path assumed in the RBA’s modelling can’t be assumed to be the bank’s path but the upward revision to the profile has been important in ensuring inflation is below the top of the band by end-2025.
• Petrol prices are having an impact on headline inflation forecasts and Bullock advised to look through this volatility over the next 6 months. Even taking this into account, inflation is falling slower than the RBA thought. The Board has not set a fixed tolerance around the timing of the return to target but if it does take significantly longer it will hike rates – this is not its central forecast.
• In response to a question on the labour market, Bullock said its resilience is being driven by a number of factors including labour hoarding, firms only finding the right skills recently, strong employment in non-cyclical sectors such as health & education, and changes due to the impact of Covid.
• The central bank is working hard to avoid a recession so that people can continue to pay higher costs through work. While some households are really struggling, others have cut back on discretionary spending to make additional mortgage payments.