The odds are good that interest rates will stay on hold on Melbourne Cup Day

Read between the lines - it would take a seriously high CPI number to bring a rate hike onto the agenda on Cup Day.

There is unlikely to be an interest rate hike on Melbourne Cup Day.

Understanding Michele, the other seven directors of the Reserve Bank, interest rates, and what’s happening in the Australian and broader global economies. Plus the ‘event’.

The media and the economentariat have got terribly excited this week at the prospect of further interest rate hikes from the ‘new’ (Michele) Bullock RBA – indeed, starting on Cup Day.

First off, Tuesday, came the minutes of the last RBA meeting – Bullock’s first as governor – and the sentence: “the board has a low tolerance for a slower return of inflation to target than currently expected”.

Then on Wednesday, in a speech from Bullock, that the global geopolitical shocks – and especially the escalating conflict between Israel and Hamas - risked entrenching higher inflation in Australia.

The over-excited leapt to declaiming that the September quarter CPI inflation data from the ABS next Wednesday could ring that ‘rate hike bell’.

A series of points, starting with ‘that sentence’ - the first and, so far, only change in official RBA commentary compared with those from the (Philip) Lowe RBA.

It directly substituted for (in the September Lowe meeting minutes): “In assessing the need for such a move (a hike), members affirmed that they will be guided by the incoming data”.

At core, it’s saying the same thing: if the incoming data shows that inflation is not coming down and quickly enough, the board’s low tolerance will guide it to a rate hike.

Even more potent are the last three words in the Bullock sentence – “than currently expected”.

The RBA only expects inflation to – just - get back to target late in 2025.

That’s a long – lots of water under the bridge – two years away.

The RBA is not going to rush to a hike – neither Bullock and even more her board - on some assumption of what might happen in late 2025.

The RBA will prepare updated forecasts ahead of the Cup Day meeting.

Normally, they would be most driven by the CPI numbers.

But this year, the RBA’s perception of where the events in the Middle East will take us, will be at least as important.

Again, it’s crucial to read all of Bullock’s speech.

Yes, she said those events were threatening higher inflation.

But they also threatened to hurt global growth and Australian growth.

For the RBA it was a balancing act; if right now the RBA was a “little bit” more concerned about the inflation impact.

Even so, none of this would demand a hike as soon as the Cup Day meeting.

Unless – as I have been explaining for months – the inflation number was seriously, and I mean seriously, higher than the RBA expected.

Then there’s the actual board.

Bullock will be ‘on her own’ at the meeting. She is yet to get ‘her Bullock’, her replacement deputy, to support her.

But she does have two new external directors, who don’t look like rate hawks to me.

Bottom line remains: it would take a seriously high CPI number to bring a rate hike onto the agenda on Cup Day.

I’ll tell you next week.

Originally published as The odds are good that interest rates will stay on hold on Melbourne Cup Day