“As each quarter goes by and our forecasts look like they're basically in line, then that gives us a little bit more confidence in the future,” she added. “We're not saying that we've won the battle against inflation yet, but we've got a little bit more confidence that things are evolving as we think in our forecasts.”
The Board’s decision, its last for 2024, was largely anticipated. (See MNI RBA WATCH: Board To Hold, Await Clearer Q4 Data) The RBA has held the cash rate at its current level since November 2023.
RBA overnight index swaps markets were 2-9 basis points softer across 2025 dates after the decision. Markets have now fully priced in a 25bp cut at the April meeting and a 3.5% terminal rate by September. (See chart)
MORE THAN A QUARTER
Bullock clarified comments within the November minutes, which stated the Reserve would need to see more than one good quarter of inflation data, explaining that this implied more than just another set of solid CPI results. “We need more information about the economy than simply one inflation print,” she continued, pointing to labour market and consumption indicators alongside Q4 CPI.
"Underlying inflation is still too high, but some of the data on the real economy is a little softer, and so that might indicate that inflationary pressures might start to come off broadly in line with our forecast,” she said, highlighting the sluggish private sector within the National Accounts.
Pointing to 0.8% y/y Q3 GDP growth, the lowest level outside the pandemic since the 1990s, Bullock stressed the economy – while weak and slightly weaker than expected – was performing in line with the Bank’s forecasts.
She said inflation and growth often told competing stories on the economy. “There is a difference between the rate of growth of the economy… and the level of demand," she explained, noting growth exploded following the pandemic. "We're still experiencing that,” she added, pointing to the gap between supply and demand.
While the RBA anticipated a period of slower growth, this will pick up as real disposable incomes rise over the coming year and inflation falls, Bullock explained.
REFRESHED BOARD
Interest rates will be decided by a refreshed Board some time after March, following the passage of the Government’s RBA reform legislation, Bullock noted. While Federal Treasurer Jim Chalmers will select Board members, the Governor and the Treasury Secretary, and current Board member, Stephen Kennedy, have already created a list of potential candidates that fit the criteria, she added.
The new Board will decide when it convenes whether votes will be attributable and to what degree members can make public comments, Bullock explained, adding she had no preference.
The Board will next meet Feb 17-18.