Reserve Bank of Australia needs to be more courageous and add certainty to help boost economy
Analysis: The most noteworthy parts of the Reserve Bank’s statements after a two-day meeting created uncertainty. It’s time to show courage and provide assurance of rate relief, writes John Rolfe
Opinion
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“A further increase in interest rates cannot be ruled out.”
That’s the most noteworthy (but depressing) piece of information we got from the Reserve Bank of Australia after its first-ever two-day board meeting, at which it decided to do nothing. For now.
In a further change following a major review of the RBA, publication of the in-depth quarterly Statement on Monetary Policy was brought forward to coincide with the rates announcement.
For the first time, the SoMP “detailed forecast table” contained a cash-rate outlook, implying two 0.25 percentage point cuts by the end of the year and another two in 2025.
I asked the Governor about this at a press conference (yes that’s new too).
“They are assumptions of a cash rate. They are not forecasts,” she said. “They are not an expectation. They are an assumption that we need in order to generate our forecasts.
“I don’t want people to get confused about the assumptions in there about this is somehow the path the Reserve Bank will follow,” Ms Bullock said. “It’s not an expectation. It’s not a commitment. It’s a technical assumption.”
The board does seem confident – kind of – that inflation will fall from 4.1 per cent now to its preferred level of 2.5 per cent by some time in 2026.
But you don’t need to have studied at the London School of Economics (as Ms Bullock has) to know that.
The annual inflation reading fell by 1.3 percentage points over the past three months, to 4.1 per cent. It has nearly halved in a year, declining much faster than the RBA expected.
The monthly indicators show a drop to 3.4 per cent in December.
That’s almost at the RBA target band of 2-3 per cent.
The central bank is being too cautious.
The economy would clearly benefit from a series of rate cuts starting soon. It is barely registering a pulse.
Ms Bullock and the board must be more courageous.
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