Bullock: RBA Will Do What It Takes, But Close To Evaluating Rate Hikes

Deputy Governor Bullock and Assistant Governor Kent have answered questions from the Senate Economics Legislation Committee on a variety of issues.

• The key point from the Q&A was Deputy Governor Bullock’s response that interest rates need to go up a “little bit” further but that the Board is “not set” on future action, consistent with not being on a “pre-set path”. She also suggested that rates are now close to a level where the Board could take time to evaluate the impact (ie. pause). Note that these answers were given when the Deputy Governor was being pressured on the cost of living impact from this year's rate tightening cycle. So this may have influenced how she framed her answers around the path of further rate increases.
• Bullock also observed that soft Q3 real retail sales data was the first figure that indicated that demand could be slowing, which she hopes is the case, but that more evidence is needed.
• She said that increased government electricity price forecasts were the main reason for the upward revision to inflation forecasts. It was also noted that some inflation pressures have become persistent and so further rate hikes are needed. The forecasted Q4 2022 peak in inflation is based on market pricing for the cash rate, which currently reflects further tightening to a terminal rate of just under 4% later in 2023.
• The RBA is happy with where inflation psychology currently is, as inflation expections further out show that consumers see current inflation as temporary. But it is important to keep increasing rates to show that the RBA will do what is necessary to return to price stability.
• Fiscal policy is seen as currently “not contractionary” but “appropriate”.
• Data still normalising after Covid.