Bullock: higher AUD and rates doing the work — but more hikes still possible
Summary:
-
Governor Bullock says a higher Australian dollar and higher interest rates will help cool demand back into balance.
-
Australia may struggle to grow above ~2% sustainably without a lift in productivity.
-
Further rate rises are not pre-committed: getting inflation down “might, or might not” require more hikes.
-
RBA remains data-dependent and will act if inflation looks entrenched.
-
Bullock’s broad read: the economy is doing OK and the labour market is “good news”
Reserve Bank of Australia Governor Michele Bullock used her latest remarks to reinforce the message we previewed ahead of her Senate appearance: the February tightening was about reasserting inflation control, while keeping the policy path explicitly open and data-led.
Bullock argued that tighter financial conditions are working through multiple channels, pointing to the combination of higher interest rates and a firmer Australian dollar as forces that should restrain demand and help bring the economy back into balance. In practical terms, a higher currency damps imported inflation and crimps traded-sector pricing power, while higher borrowing costs curb discretionary spending and cool interest-sensitive sectors.
On the medium-term outlook, Bullock flagged a key constraint: trend growth may be hard to sustain above 2% without stronger productivity. That is a pointed signal for markets and Canberra alike, if productivity doesn’t lift, the economy’s non-inflationary speed limit is lower, meaning demand can run “too hot” even at modest headline growth rates.
On rates, Bullock avoided a hard steer. She said bringing inflation down may or may not require further hikes, underscoring the RBA’s preference to wait for the data and respond if inflation persistence becomes clearer. The conditionality matters: it keeps the tightening bias alive without locking the Board into a preset path.
The broader tone was not alarmist. Bullock characterised the economy as “doing OK” and highlighted the labour market as “good news”, consistent with the view that the RBA can afford to be patient, but not complacent. The takeaway for traders: the door remains open either way, but the reaction function is increasingly centred on whether inflation becomes entrenched rather than on near-term growth wobbles.
This article was written by Eamonn Sheridan at investinglive.com.