Borrowers will be frustrated to hear the Reserve Bank has left interest rates on hold again but it's talking more optimistically about the next move being down. Australia's economy recorded its weakest annual growth rate in decades in the September quarter, outside of the pandemic but the RBA is still wary of inflationary pressures.
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00:00Michelle Bullock, the Governor, said inflation is basically still too high and the Reserve
00:06Bank is attempting to lower inflation with interest rates while without too many people
00:12losing their jobs.
00:13So they're walking a narrow path, as they say, trying to do these two things at once.
00:18Michelle Bullock just now in this press conference was asked by the ABC's David Chow, a colleague
00:24of mine on News Channel, about why the RBA hasn't started cutting interest rates yet.
00:29And she responded by saying basically inflation just isn't where it needs to be yet.
00:33Let's take a listen.
00:34It's true that some of the economic data has been a bit softer and it's also true that
00:41some of the nominal side, in particular inflation, is remaining quite elevated.
00:46So you've got two sets of data which are telling you possibly different things.
00:51What I would suggest is that, and I've said this before, there is a difference between
00:57the rate of growth of the economy, and we all know it's slowing, and the private sector
01:01in particular is slowing, and the level of demand.
01:05And we've been making this point for some time that growth exploded so strongly coming
01:12out of the pandemic that it got to very strong and a very high level and the economy couldn't
01:17supply the goods and services that people were demanding coming out of the pandemic.
01:21We're still experiencing that, so we have to have a period of slower growth, but our
01:27forecast suggests that growth will start to pick up as real disposable incomes start
01:32to pick up over the coming year, and that inflation will continue to come down.
01:36So we still think we're on that path.
01:39Reserve Bank Governor Michelle Bullock speaking there just a short time ago.
01:42And so Nadia, there were some really interesting subtle changes in language, essentially before
01:48they were having kind of two bob each way about whether rates were going to go up or
01:51down, and now they're kind of tending to be more optimistic about rates going down
01:58in the next move.
02:00So what did she have to say about that language, and what does that indicate about when a cut
02:06might come?
02:07Yeah, you're exactly right.
02:08So this statement and what Michelle Bullock announced is seen to be using language that's
02:14a bit more optimistic or dovish.
02:15So along with the decision, the RBA releases a statement, and if you read through the language,
02:20it's really interesting, they provide some clues about where they could be heading next.
02:25So the statement said, in part, the board is gaining some confidence that inflation
02:30is moving sustainably towards target.
02:32So that's a lot more positive than language we've seen previously.
02:36And notably, this is also the first time the RBA hasn't used this well-worn phrase they
02:40would always refer back to saying the board is not ruling anything in or out, you know,
02:44bob each way, as you said.
02:46So we can assume from that, that the next move for the RBA will be a cut rather than
02:52a hike in interest rates.
02:55Most economists think that will come in around May next year.
02:59It'll be interesting to see if any have changed that forecast following today's decision.
03:03And I spoke to economist Angela Jackson a little earlier for her take.
03:08I think it will certainly be in the next half of next year.
03:11The question is whether or not the Reserve Bank moves too soon or too late.
03:16So they are really, you know, and we've talked about this, it's a tightrope.
03:19They're trying to bring inflation down without causing a recession.
03:22Now, we've seen with the latest figures in terms of how the economy is growing, that
03:26the only thing keeping the economy in the positive at the moment is the government,
03:30is fiscal policy.
03:32That means the private sector is very, very weak and is really calling out and urgently
03:37calling out for that rate cut.
03:39The Reserve Bank will move when it feels confident that it can do so without unleashing those
03:44inflationary pressures.
03:45Now, the hope is that that will be in February.
03:48I think there is all indications that really we're getting enough indications now that
03:52the economy has slowed enough for the Reserve Bank to start easing monetary policy.
03:58But we are going to have to wait and see.
03:59It is going to really depend on what the data says between now and then about whether or
04:04not the Reserve Bank feels confident enough to move.
04:07As Angela Jackson was saying, a bit more positive sentiment, but we will have to wait until
04:12February 18th next year to see where they go next.
04:15That is when the board will next get together.
04:19And that's your finance news for now.