Michele Bullock marked her first-year anniversary as the governor of the Reserve Bank with a shift in tone.
So far under her watch there’s been one rate rise (last November) and eight holds. On the current path, Bullock will be sitting on her hands until early next year.
However, since taking charge last September Bullock has explicitly and overtly offered a threat of a rate increase at every RBA board meeting. Now fresh from her latest two-day meeting, the risk of Bullock hiking one more time for this cycle appears all but gone. Happy anniversary Australia.
There is still some way to go before Bullock will be ready to cut, but the conditions needed to get there are improving ever so slowly. After Tuesday’s RBA decision the market has fully priced in a cut for February – while the December meeting is a live prospect.
The big sticking point is inflation needs to “sustainably” get back down to target range and, as always, there’s important quarterly inflation data coming at the end of next month. A really good number could be a turning point.
A not so good number will mean rates stay where they are for longer but it’s going to be increasingly tough for Bullock’s RBA to prosecute a case for another hike.
The RBA is one of the remaining holdouts among global central banks; the trend is for rates is starting to come down. This was well and truly the case when the US Federal Reserve pushed through a bumper 50 basis point cut last week. Nearly a dozen others, including the UK, Canada and New Zealand, have cut.
Even China finally moved to cut its benchmark interest rates and eased other mortgage settings in an effort to turn the tide on a rapidly collapsing property market. With inflation still too running high, Bullock declared she won’t be rushed into cutting.
And in a world where rates are falling it would be increasingly difficult for Australia’s central bank governor to stand up and warn of holding a meeting where another hike was discussed. This time there had been a rejig of the format of the two-day board meeting which made a subtle, but significant difference.
The discussion is now around what data had changed since the last meeting (in August) to make a case to raise interest rates or lower interest rates. This meant there wasn’t a need for an explicit discussion to raise rates.
This comment in itself by Bullock was enough to cool an excited Australian dollar and bond markets reacted in tune. Whether this format persists will be the thing to watch going into the November meeting.
“We haven’t had to come down yet because we’re not quite as restrictive as everyone else, and we’re not seeing the same response in our economy,” Bullock told a post board meeting briefing.
Even after a year into the role, the politics of the Reserve Bank is more intense than ever.
However with rates no longer on the up, the focus has shifted slightly away from Bullock as the face of cash rates, to what is the role of the RBA.
This includes increased sniping from the government’s own MPs, and even Labor luminaries like Wayne Swan, about rates being held too high for too long.
Much of the attention can be sheeted back to government’s own mishandling of the RBA since taking office, including pushing through the rushed Reserve Bank review. This has only exposed the central bank to become a bargaining chip.
It also means Treasurer Jim Chalmers’ legislative efforts to split the RBA board into an interest rate-setting body and a governance board are looking shaky.
The Greens will offer their support on the rider the government forces the RBA to cut rates, which is a non-starter. The Coalition doesn’t want any more tinkering with the RBA board and has walked back its support.
Bullock has been around central banking too long to buy into the politics. However she offered her support for Chalmers’ push to establish an RBA with a split board. Already intense work has gone on behind the scenes restructuring the RBA, she says, but additional oversight of a complex institution was a good thing.
The RBA is more than cash rates, Bullock reminds us. It involves payments, government banking and money markets that demands high levels of governance and expertise.
“All of these things are really important functions of the bank and at the moment I’m the sole accountable authority for those,” she says.
Even if the dual board changes aren’t forthcoming “it would be good for us to get some structure … some assistance for me in managing that”.
And did Bullock’s have a reflection now that she has made it to past her first year?
“It’s been all challenging – and not just monetary policy.”
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