- We are still looking to bring inflation down without sacrificing much
- The economy is actually in a really good position
- The labour market is really strong and domestic demand is recovering
- But it is just that we’re supply constrained, and it might be more so than what we thought a while back
- We’re still adopting the same approach/strategy but it is always difficult to strike a balance
- We are uncomfortable with inflation at the level it is currently
- If inflation continues to keep at this level, that is not acceptable; hence, the rate hike today
- There is uncertainty surrounding the persistence of inflation pressures
- We might have to raise the cash rate further if inflation remains more persistent
- Australian dollar appreciating does help to provide a buffer for the economy
- We already factored in a higher exchange rate into our forecast
- We expect Australian dollar to shift up as interest differentials move in our favour
- This is not the same tightening cycle when we came out of the Covid pandemic
- We cannot rule anything in or out at this stage, it’s not clear one way or the other
- Now we’re actively monitoring data to try and figure out how to bring inflation back
A lot of the questions are basically just roundabout ways of trying to question if there will be more rate hikes to come and if the RBA has gotten it “wrong” with their policy moves last year. Just as an aside though, this rate hike comes six months after the last rate cut and fits with the timeline lag in how the RBA has conducted policy pivots in the past. So, I’m not sure what the fuss is all about. I guess everyone just wants to find fault with something, as controversy sells.
Just to sum things up, Bullock has basically just said that they will be keeping more cautious and they will be taking a more data-dependent approach. They’re not going to pre-commit to any further rate hikes but it is clear now that inflation is the main problem they’re dealing with.
Given the circumstances, they’re expecting price developments to look better over time and not rush them to hike rates more aggressively. However, the caveat here is that if inflation pressures are not as temporary as they anticipate, it could force them to raise the cash rate at a quicker pace.
So, that is the main takeaway for me here. AUD/USD is trading up 0.9% to 0.7013 currently.
This article was written by Justin Low at investinglive.com.