Reserve Bank governor Michele Bullock is the latest leader of a key economic institution to stand defiantly in the way of Jim Chalmers.
The independent RBA’s decision not to cut interest rates this week for the third time this year was a surprise to the markets and a surprise to the Treasurer, who thought such a decision would disappoint millions of Australians.
Bullock is not having one ounce of the sort of browbeating the world has seen from another prominent leader towards the independent interest rate setter.
Last week, US President Donald Trump hit out at the Federal Reserve chairman Jerome Powell yet again, saying he had done “a lousy job”, and that interest rates should be 1 per cent.
Bullock is not getting that level of disrespect from Chalmers but there is plenty of reading between the lines to be done. Chalmers noted again on Tuesday after the bank’s decision that a rate cut was justified because inflation is where it should be.
“It’s not the result millions of Australians were hoping for or what the market was expecting,” he said, before pushing the inflation rationale. “Underlying monthly inflation has been in the RBA’s target band for six consecutive months and is at its lowest level since November 2021.”
Bullock wasn’t having any of that, insisting the split in the decision by the board was because of misguided interpretation of inflation, made unclear by Chalmers election-winning rebates.
“The difference between the two camps really was down to a slightly softer reading ... those who wanted to cut had a slightly softer reading of the data than those that wanted to hold. If you look at the monthly CPI ... but I don’t think it’s really clear, that’s actually an artifact of certain subsidies,” she said.
Some economists such as David Bassanese, who predicted the “hold” decision, said it was clear monthly inflation readings were useless.
“While the recent monthly CPI report showed a large decline in annual trimmed mean inflation to 2.4 per cent, monthly reports are notoriously volatile,” he said.
Bullock’s main line on protecting central bank independence was the need to see through all the inflation smoke and mirrors.
“Central bank independence, what’s important there is that it’s really important for people to have stable inflation expectations, and one of the best ways to deliver that is to have a central bank that you trust to be focused on keeping inflation low and stable.”
She represents the pushback from other independent economic institutional leaders such as Productivity Commission chair Danielle Wood, who has directly contradicted the Treasurer on policies such as the protectionist-style Future Made in Australia and asked for GST reform to be considered.
It will be interesting to see how these three key economic managers will communicate to each other in August’s Economic Reform Roundtable in Canberra.
Maybe Treasury secretary Jenny Wilkinson will be the next to stand up to Chalmers on points of contention.
After all, Wilkinson is on the RBA board now that ultimately decided against another rate cut.
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