No Rate Cuts In “Near-Term”

RBA Governor Bullock stated at the press conference that a hike had been discussed today and made clear that in the “near-term” rate cuts are not on the agenda as they do not “align with Board thinking” with the “near-term being around the next 6 months”. The other option discussed was staying on hold for “some time”. Bullock also warned that if inflation doesn’t return to target in line with expectations, then rates will need to rise.

• Bullock also observed that market pricing for rate cuts by year-end was not in line with the Board’s thinking on the economy and she said that it had “got ahead of itself”. Market pricing was used in the forecasts and has 70bp of rate cuts by end-2025, but rates on hold longer than this should add to downward pressure on inflation. Bullock warned though that the OCR is a technical assumption.
• The return of inflation is likely to be “bumpy” and the Board is “very alert to the risks” that inflation won’t return to target by end-2025. She said that rates are currently “restrictive enough” to achieve this.
• Bullock also pointed out that trimmed mean is the best underlying inflation indicator which will look through temporary government measures.
• While services inflation remains too high, there was a reduction across components. Bullock observed that OECD services inflation is generally 5-6% and Australia hasn’t seen the same total disinflation due to strong dwelling construction costs. The Board will remain focussed on domestic developments and Bullock pointed out that countries that have eased have higher rates than Australia.
• The RBA believes that the Australian economy is still on the “narrow path” and that a recession is unlikely.