New RBA governor Bullock signals seamless continuity from the Lowe era

It will take a big jump in the quarterly inflation rate, above 1.5 per cent, to spark a rate hike at the RBA’s pivotal Melbourne Cup Day meeting next month.

RBA Governor Michele Bullock at the RBA offices in Martin Place, Sydney. Picture: John Feder/The Australian

Two things didn’t change in Michele Bullock’s first policy statement as governor of the Reserve Bank.

The first was of course the RBA’s official interest rate.

It’s now on to the very often – and it will be the case again – pivotal Melbourne Cup Day meeting, that comes this year an excruciatingly extended 13 days after the ABS releases its 2024-defining September quarter CPI inflation numbers.

Those inflation numbers will not only largely determine whether we get a rate hike from Bullock and her board at just her second meeting as governor,

They will also set the foundation for rates; and indeed ‘everything’ in the economy through 2024.

The second thing that didn’t change in Bullock’s statement was arguably even more important.

It was the last paragraph. It was word-for-word unchanged from the last paragraph in Philip Lowe’s last statement as governor, the month before.

She could not have picked a more out-there statement of seamless continuity from the Lowe RBA to the Bullock RBA.

This should not be surprising, for anyone who understands that it was always simplistic to talk about ‘Lowe’s RBA’.

Why the RBA has been such a success with monetary policy, that’s interest rates and inflation – and the record is unambiguous and undeniable, in any comparison with all the major central banks – is precisely a consequence of the dynamic relationship between governor, deputy and the external board. It is critical that monetary policy – both from month-to-month and with a longer-term horizon – is argued out, is nutted out, within the RBA on a continuing 24/7 time-frame.

At core that means governor and deputy ending up on the same page; and then taking that ‘page’, so to speak, to each board meeting.

But also, critically, in bringing the external directors into the loop; both in ‘signing-on’ to both the immediate rate decision and the longer-term objective.

But also, bouncing off their real-world interrogation – sometimes reinforcing, sometimes qualifying – of the management analysis and assessment.

This is what we are at risk of ditching, with the embarrassingly simplistic ‘review’ of the RBA.

Ahead of those changes, Bullock has signalled ‘business as usual’; and ‘business’ that she was a critical part of framing.

This is what former governor Lowe kept stressing as the “narrow path” – winding inflation gradually back to the RBA’s mandated 2-3 per cent target range, without throwing the economy into serious recession and sending the jobless rate rocketing.

My concern has always been around the risks of ‘taking too long’ – as in: mid-to-late 2025 – in getting inflation below 3 per cent. That it left too much time for a wages blow-out.

But I also concede that Lowe – and Bullock and the board – might prove to have got it exactly, or pretty close to, right.

To say that Bullock has signalled seamless continuity is not to say she will be just a Lowe clone.

Not that there would be anything wrong with that. She will be her own governor. And it’s crucial she gets a deputy like Lowe had.

As for November, it would take a big jump in the quarterly inflation rate, above 1.5 per cent to spark a rate hike.