Reserve Bank governor Michele Bullock is keeping her options open on interest rate movements both up and down and remains alert to economic risks on the horizon.
“Nothing’s in, nothing’s out,” Ms Bullock said during the first-ever post-meeting media conference.
Board members decided to leave interest rates steady at 4.35 per cent on Tuesday after the bank’s first two-day meeting in what was an almost universally expected move.
With encouraging progress on inflation logged in the December consumer price update, focus has switched from the possibility of more interest rate hikes in this cycle to the likely timing of cuts.
Yet Ms Bullock said the central bank was dealing with both upside and downside risks to its economic outlook and would not rule out more increases to monetary policy.
“If the risks on the downside present themselves, then we have the options of cutting interest rates. If the risks on the upside eventuate, then we might have to look at whether or not we need to increase again,” she said.
Asked if inflation was heading sustainably back within the two-three per cent band, she said Australia was “potentially” still on the narrow path to a soft landing.
This refers to a situation where inflation is brought under control while the economy keeps growing.
“My predecessor used to talk about the narrow path. I feel that we are potentially on that narrow path, but I also feel that we need to just remain very alert to the risks on both sides,” she said.
The news conference – a new edition to the post-meeting regime designed to inject more transparency into the bank’s operations – fleshed out communications in a statement issued by the board.
“Encouraging signs” were highlighted but the board “remains highly attentive to inflation risks”.
Uncertainty hanging over the Chinese economy was flagged, as well as risks stemming from the conflicts in Ukraine and the Middle East.
Services price inflation could also prove persistent in Australia, as it has elsewhere, with the board noting it had declined at a more gradual pace than goods and in line with the RBA’s earlier forecasts.
The central bank has also revised its inflation forecasts down but still expects inflation will be back within its target range by the end of 2025 and around the midpoint in 2026.
The RBA sees inflation falling to 3.3 per cent by June this year before easing very gradually to 2.8 per cent – within the two to three per cent target range – by December next year.
Treasurer Jim Chalmers welcomed the rate relief for Australians “already under the pump”.
“As the Reserve Bank said in its statement, there are encouraging signs in our economy, inflation is moderating but they recognise, as we do, that inflation is still too high in our economy,” he told parliament on Tuesday.
Poppy Johnston
(Australian Associated Press)
