Welcome, one and all, to the official opening of the brand, spanking-new Reserve Bank!
Here, transparency is the watch-word, and anxious homeowners will no longer have to search for meaning within a heavily-worded statement on what rate they’ll soon be paying on their mortgage ... or — for the lucky ones, what they’ll be saving on top of their big fat bank deposits.
As part of a long-overdue overhaul of our central bank, quarterly forecasts will be released at the same time as the rates decision, and governor Michele Bullock will hold a press conference shortly after to explain the bank’s thinking.
All well and good, but some argue it comes as too little, too late given last week’s inflation data — which came in at a better-than-expected 4.1 per cent for the year to the end of December — signals that the RBA’s tightest squeeze on credit in a generation has come to an end.
But — just like the kid who finally stops sticking pointy metal things into power sockets — praise is key to fostering continued good behaviour. So, keep it up RBA!
And while there was always about as much chance of a move on rates today as there was of nabbing a complete set of those red-hot Bluey gnomes at your local Bunnings, now’s not the time to break out the champagne.
Inflation may be falling faster than even the bank’s own forecast, but the board is unlikely to open the floodgates on easy money anytime soon, with even the most optimistic economists suggesting the first rate cut may only come by mid-year. Others aren’t quite so glass-half-full.
Why? Taking the official cash rate from 0.1 per cent in May 2022 to 4.35 per cent, as it currently stands, may have crimped homebuyers’ borrowing power but it hasn’t put out the fire burning under the nation’s property market, with modest rises again predicted for this year. (Perth house prices rose 4.4 per cent in the three months to December — the steepest quarterly increase in three years.)
The RBA will be conscious of overheating the market by reducing rates quite so soon — increased borrowing capacity plus the windfall many will receive when stage three tax cuts come into effect equals that fire becoming a blazing inferno.
So, be prepared to tread water on rates for the next few months.
Boring it may be, but rest assured the new-look RBA will make sure we know all about it.
Key Events
CBA tips cuts by September
The RBA may be tight-lipped on when it will make a move to ease rates, the Commonwealth Bank is forecasting a cut by September .. and ruling out any further hikes.
“Maintaining a tightening bias signals to the fiscal authorities that it’s too early to declare the inflation fight over. The RBA would not wish to see fiscal settings loosened until further progress on inflation has been made towards the target band,” the bank said.
“Our central scenario sees the RBA commence an easing cycle in September 2024 (we have 75bp of rate cuts in our profile in late 2024 and a further 75bp of easing in H1 25, which would take the cash rate to 2.85 per cent).
Families share their rates pain
Ms Bullock said beyond the RBA liaising with community and business groups, as well as mental health advocates such as beyondblue, she also received many letters from homeowners struggling under the weight of higher mortgage repayments.
She conceded the resulting pain of increasing rates to curb spending was not distributed evenly, but “the alternative is so much worse”.
Technical versus reality
Ms Bullock has reminded Australians about the importance of not reading too much into its “assumptions”, saying it could only act as the economy moves closer into a narrower band of expectations for inflation.
Asked what worries her most, her answer comes back to inflation, targets and avoiding damage to the labour market.
“The board is convinced we can manage this. There are risks on the upside that are sitting out there ... we get some more shocks and we don’t know where they’re coming from - what I don’t know what’s coming and how we handle it.”
She said the shift to a two-day meeting opened the door to more time to discuss the issues and strategy.
And now she will take questions from the media ...
Ms Bullock said the RBA needed to be reassured inflation is coming back to target - that’s the 2 to 3 per cent range we’ve heard so much about.
But “it’s still got a four in front of it” so don’t bank on cuts anytime soon.
On the Federal Government’s stage 3 tax cuts, Ms Bullock said the extra cash coming into the economy was not “a material issue”.
“We don’t think it has any implications for our forecasts.”
She also defended the RBA’s last rate rise in November, saying all decisions are based on risk management for the economy. She said at that time, the risks had risen to the upside and it was the appropriate move.
She also pointed out the RBA had not hiked rates as much as central banks in other countries.
On rate cust, she said nothing was “ruled in or ruled out”, saying “we need to be driven by the data”.
She acknowledged mortgageholders were “doing it tough” but there were more risks in not acting to bring down inflation.
She said the RBA was conscious of back-tracking on monetary policy by cutting too soon, which would hurt households.
“The signs are good but we have to be vigilant,” she said.
Bullock fronts the media ...
Speaking about the RBA board’s rapid-fire rate rises, governor Michele Bullock says Australia had been in the midst of a once-in-a-lifetime pandemic and rates were taken to near-zero as an emergency measure.
“But it was never going to stay there,” she said.
She said inflation was once “in the background” for many Australians and that’s where she wants it to return.
Ms Bullock said the trick now was to hold onto employment targets while also bringing down inflation to between 2 and 3 per cent.
Coming up ...
... a press conference with Michele Bullock. Just a few minutes away, stay tuned.
Technical terms
Employment is expected to continue to grow moderately and the unemployment rate and the broader underutilisation rate are expected to increase a bit further.
A bit? Pardon? Could this be part of its new ‘plain speaking’ agenda?
Governor gets ready to face the music
Under the new RBA regime, governor Michele Bullock will now be preparing to front a press conference to discuss the board’s decision in about 45 minutes.
It’s a marked change from the previous set-up when economists would sometimes wait days to hear from any RBA executives, leaving them with just the one-page rates decision statement to mull over.
The question remains: how much will she give away about the board’s thinking beyond what we’ve just been told?
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2024-02-06 05:51:54Z
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