RBA Stance Unchanged And Will Tighten If Inflation Stickier

RBA Governor Bullock remained neutral and reiterated the Board’s stance of not “ruling anything or out” and that policy is “restrictive”. She said that if inflation turns out stickier than expected then the central bank won’t hesitate to raise rates while a lot weaker economy would lead them to ease.

• Removing monetary policy restrictiveness too early would be costly. The RBA won’t begin reducing rates until it is convinced that inflation will return to the band. While the risks to inflation are seen as balanced the consequences are not with the Board more concerned about upside risks.
• When asked about the budget Bullock didn’t comment on whether it was expansionary or not. She doesn’t expect that the energy rebate will impact core inflation or the RBA’s CPI forecasts materially.
• The RBA has noted that monthly CPI is trending higher again but the series is not comprehensive and so it is waiting for the quarterly data, but that makes it difficult to gauge momentum. The Q2 CPI due on July 31 will be important for the RBA’s outlook but Bullock warned that it is a lagging indicator and the bank looks at other data too. Bullock said that they need to step back and watch.
• The economy is not in recession despite weak growth and falling GDP per capita as the labour market is still growing. Unemployment is only rising because the labour force is growing faster than labour demand. Also despite weak growth the RBA believes that demand is still running slightly above supply, which is driving domestic inflation.
• Around 80% of rate hikes this cycle have been passed onto borrowers with the rest of fixed rate loans rolling over this year. The pass through this cycle was slower than previously due to a higher share of fixed loans at the start of the cycle.