RBA governor, Michele Bullock, is offering a few more clues on where the central bank’s thinking is heading today. And the message is becoming increasingly difficult to read as anything other than higher-for-longer. Here are her added comments to the earlier message:
- Inflation risks are now materialising from both the Middle East and excess demand at home
- Neutral rates are rising globally, helping to push real bond yields higher
- Australian dollar performance is broadly reflecting commodity prices and interest-rate differentials
Her point on inflation risks is one to be wary about. The RBA can arguably look through some of the direct impact from an external energy shock. However, it becomes much harder to do that when domestic demand is already adding to inflation pressures and there is a risk of second-round effects developing.
That keeps the door open to further tightening after the RBA left the cash rate unchanged at 4.35% in August. The next policy meeting and decision will come on 29 September and markets are pricing in around 95% odds of a 25 bps rate hike currently. So, Bullock’s comments seem to be a nod in that direction.
The RBA forecast also reflects that, as the central bank continues to flag that inflation is still running too high. And that they don’t expect it to return to the middle of its 2-3% target range until early 2028.
Putting the pieces together, there is little here to encourage expectations of easier policy. The immediate question is whether the RBA needs another rate hike. The bigger one may be how long rates ultimately stay elevated.
This article was written by Justin Low at investinglive.com.