Uncertainty over the rate path lingers as Bullock warns inflation risks have not fully eased
Reserve Bank of Australia (RBA) governor Michele Bullock (pictured top) has cautioned that the country’s inflation challenge remains unresolved, telling borrowers and lenders that monetary policy will need time to work through the economy.
According to Bullock, February’s increase in the cash rate – the first in more than two years – followed extensive internal analysis and deliberation by the RBA board.
The 25-basis-point move, which took the cash rate to 3.85%, had been widely anticipated by markets, and the minutes of the meeting confirmed unanimous support among board members.
Bullock’s comments come after criticism of the central bank’s recent public guidance, with some observers pointing to a sharp shift from expectations of a possible rate cut to a rate rise in a relatively short period.
“Forecasting is not easy, it is not a science,” the central bank governor told Melbourne University on Friday. “What you’re doing is summarising the individual decisions of millions of Australians and trying to put them into a single equation, and it doesn’t work like that.
“There was the recognition in February that inflation was too high and the forecast was that it wasn’t going to come back into target soon without some action.”
Bullock stressed that, while the data guiding the board’s decisions inevitably relate to past conditions, the RBA must apply its judgement about how those figures will shape future outcomes. “We are not backward looking but forecasting is inherently difficult and we do our best,” she said.
Bullock also addressed scrutiny of the central bank’s communication and transparency. She said the RBA accepted that it must explain its decisions clearly to the public, but added that external commentary often understated the complexity of real-time policy choices.
“What I would really like is people to be able to say they don’t necessarily agree with what the [RBA] is saying, but they understand why we are saying it and trust we have done the work we need to be able to understand it,” she said. “Economics is about judgments. Reasonable people can differ as we see every day.”
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