RBA Governor Bullock provides no rate guidance, says waiting for data is prudent

Early in the press conference:

Bullock's remarks sent conflicting signals for the Australian dollar and the near end of the yield curve. The governor's insistence that inflation is largely fixed for the coming year and that unemployment needs to climb underlines the central bank's determination. Yet her description of the board's minority suggests a large faction is already worried about doing too much. This split leaves the door open to more hikes while making them far from certain, checking the AUD's ability to recover strongly from its post-meeting slide. For Australian stocks, the clear acknowledgment that growth and unemployment will worsen heaps further strain on rate-sensitive names like banks, retailers and property firms – sectors the RBA itself has flagged as stressed.

The governor's recommendation to pause and watch for data shifts the odds toward a hold, diminishes the likelihood of a quick follow-up increase and restricts the Australian dollar's potential to rally.

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The RBA chief argued that enduring some economic hardship today will prevent inflation from taking root, though her account of the internal split reveals a board fracturing over how far to go.

Key points from the press conference:

• Michele Bullock, the RBA governor, stated the increase was necessary to lower inflation and aimed at domestic capacity bottlenecks.
• Expansion, she noted, must stay tepid, and the jobless rate needs to increase.
• Some discomfort today avoids graver consequences tomorrow, she contended.
• The trio who voted for no change perceived larger economic threats and considered that the board needed to gather more data.
• The governor said inflation is largely fixed for the next year and termed that a poor position.
• The RBA's 25-basis-point rate increase to 4.85% earlier Tuesday was passed on a 6-3 vote, the highest cash rate in 18 years.
• Bullock gave no forward guidance, said she is uncertain about the next move in interest rates and remarked that it might be best to pause and review fresh data.
• Monetary tightening will be effective but transmission is slow, Bullock said, observing that joblessness remains fairly low, hiring is ongoing and the economy is not yet fracturing.

RBA Governor Michele Bullock stated Tuesday that the recent increase to the cash rate was essential to reducing inflation, and that slower growth and a higher jobless rate are the price to pay.

Addressing journalists after the board's 25-basis-point rise to 4.85%, Bullock said the move targeted domestic capacity strains. Some discomfort today, she argued, wards off greater trouble later. Weaker expansion and higher joblessness are necessary, she added.

The RBA chief was blunt about the near-term price picture. She stated that inflation "is largely baked in for the next year" and that this was "not a good situation to be in". The remarks match the bank's latest projections, published with the decision, which see headline inflation peaking at 4.5% in the December quarter and both headline and trimmed mean readings above 3% until late 2027.

Bullock also detailed the board's split. A majority of six backed the increase while three wanted to stay at 4.60%. According to the governor, the holdout group judged the downside threats to the economy as larger and preferred to delay for more information.

Looking ahead, Bullock said she is unaware of what the next rate decision will be and that the board is providing no forward steer. It would most likely be wise, she said, to hold off and evaluate fresh data, a comment that may bolster bets that the latest rise will be followed by a standstill.

Because the Reserve Bank reports only the tallies, not who voted which way, the names of the three dissenters remain unknown.

This increase, the Reserve Bank's fifth this year, brings the cash rate to a level unseen since 2008. The board's statement promised vigilance and a data-driven approach to hitting its inflation target, stopping short of a firm promise on more tightening. The Australian dollar slipped once the decision landed, an outcome widely anticipated by markets. Speculation that the divided vote could be the final increase of the cycle also circulated.

Bullock voiced certainty that the tightening will do its job, noting that rate policy is effective though transmission is gradual. She observed that the jobless rate is still fairly low and hiring continues, saying the economy is not bending under the strain yet.

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Steering the cash rate to an 18-year peak is no simple task for the Reserve Bank's head.