RBA deputy governor says there is still path to avoid recession

Australia has one advantage over international economies for avoiding a recession, the Reserve Bank deputy governor says.

The Reserve Bank of Australia deputy governor Michele Bullock says there is still a path for Australia to avoid going into recession.

“We still feel that there is a path for us here where we can get inflation down, not go into recession, preserve most of the gains in employment that we’ve had,” Ms Bullock said at the Australian Finance Industry Association (AFIA) annual conference in Sydney on Tuesday morning.

Earlier this month, the RBA made the shock decision to ease interest rate hikes by applying a moderate 25 basis point rise rather than the 50 basis points predicted by markets.

It was the first time the bank had offered some relief to consumers after four consecutive 0.5 percentage point hikes in the last 12 months had wreaked havoc on mortgage repayments.

“Inflation is too high at the moment,” Ms Bullock said.

RBA deputy governor Michelle Bullock said there was a possibility Australia would avoid a recession. Picture: NCA NewsWire

She explained the decision to increase interest rates by just 25 basis points was one which took into consideration the four consecutive increases of 0.5 percentage points already made since May.

The RBA released minutes from the October meeting of its Board ahead of the moderate interest rate rise.

When considering an increase to interest rates, the Board reflected on whether the community would question its resolve to reduce inflation.

“This might in turn prompt an unhelpful reaction in inflation expectations and financial markets, if the community came to question the Board’s resolve to reduce inflation,” the RBA said.

It also noted the risk that household spending might increase despite the likelihood that interest rates would increase again in the near future.

Ms Bullock revealed the RBA was uniquely positioned compared with its overseas peers because the board met 11 times a year.

Ms Bullock said the RBA was uniquely positioned to hand down more incremental changes to interest rates. Picture: NCA NewsWire / Gaye Gerard

“It means that we can increase rates at every meeting and we can achieve a similar rise but in smaller increments,” she said.

The RBA board suggested in its minutes that slowly adjusting interest rates would allow it to “assess the effects of the significant increases in interest rates” and “the evolving economic outlook”.

Wage growth has “picked up” but remains lower than in other advanced economies – where the inflation rate is currently higher.

The board suggests that as businesses seek to grow their employee count in a tight labour market, wages will likely lift higher in the coming months.

The RBA will meet again on November 1 when another interest rate rise will likely be discussed by board members.

It will take into consideration the September Quarterly Consumer Price Index due to be released on October 26.

The RBA forecasts the consumer price index will reach 7.75 per cent by the end of 2022, “a little over” 4 per cent in 2023 and around 3 per cent in 2024.

Originally published as RBA deputy governor says there is still path to avoid recession