RBA interest rates: Governor Michele Bullock ‘balancing risks’ in ‘complex situation’

Reserve Bank governor Michele Bullock has pushed back on critics who profess to know exactly what the central bank should be doing as it tackles an uncertain economy.

Speaking after the RBA kept rates on hold at 4.35 per cent, Ms Bullock said evidence on inflation pointed to demand still being too strong, and she genuinely felt Australia was in “quite a complex situation”.

“Forecasts are inherently uncertain and it’s very difficult and anyone who thinks that they’re very certain about their point forecasts, I think, is really not being very honest,” she said at a press conference in Sydney on Tuesday.

“I really, genuinely feel that we’re in quite a complex situation here. I know that people out there are much more definite and they seem much more convinced that they know exactly what to do — it’s not as easy as that.

“It’s a challenging time and the reason it’s a challenging time is we’ve got balancing risks on both sides here.

“Earlier on when we were raising rates, it was quite obvious what we had to do. It’s not so obvious now.”

Ms Bullock said while the RBA expected the global economy had troughed, and would likely not bottom out further, there were still strong risks domestically that may necessitate further rate hikes. These included stronger than expected demand.

“I can explain to people, if you like, that part of the reason inflation is holding up is because demand is holding up,” she said. “Maybe they can take home and think about how they’re contributing to that, I don’t know.

“But certainly I think we do believe it’s working but it’s just going to be a slow grind to bring inflation back.”

The RBA board did not discuss a rate cut in its meeting this week but Ms Bullock confirmed it did consider a hike.

“We need a lot to go our way if we are going to bring inflation down to the 2 to 3 per cent target,” Ms Bullock said.

“If it looks like inflation is not coming back sustainably within the band within a reasonable amount of time that just increases the risks that inflation expectations will adjust and that’ll make it harder to get inflation down in future.”

Westpac business bank chief economist Besa Deda assessed that “the RBA Board appears less certain that inflation is moderating as they’d like”.

Separately, Ms Bullock said migration and productivity were not necessarily linked, and volatile migration patterns due to the pandemic had created “indigestion” in the economy — particularly by putting pressure on the housing market, though she noted rents had increased before immigration had picked up.