Westpac’s Ellis: RBA is chattier, still silent on rates — data reads matter most

For those trading rates, the note warns against placing too much weight on changes in tone between the press conference and speeches aimed at the market; the minutes and how officials interpret the data are the more dependable signal. The Governor’s comment that the labour market is a little tight, together with the staff’s downbeat reading of supply capacity, gives the note a hawkish tilt and supports pricing for more tightening rather than a pause. The coming two weeks are crowded with event risk for the Australian dollar and front-end yields: the quarterly CPI arrives at the same time as Senate Estimates testimony, and that is followed by the November decision, the Statement on Monetary Policy and more speeches. Given that supply shocks, including energy, are behind inflation, a robust CPI reading would add weight to the hawkish interpretation.

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A day earlier:

• RBA’s Hunter: inflation task incomplete after four hikes; November rise in sight

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The RBA has never spoken so much, yet Luci Ellis of Westpac says market participants looking for commitments ought to pay attention to how the central bank reads the data, since that is where the true signal lies.

Summary:

• Luci Ellis, chief economist at Westpac Group, puts the number of RBA public engagements this year at 58, equal to the whole of last year and higher than the 52 seen in 2024
• Delivery has moved from set-piece addresses to fireside chats and broad media interviews, in part aimed at a general audience
• Because press conferences are aimed at the public, their tone can come across softer than in market-focused settings; Ellis argues the minutes give a truer picture of the Board’s thinking
• The speeches have grown more technical, covering neutral rates and financial conditions, and a quick check of readability indicates they are more difficult to follow than in 2021
• There is still no forward guidance from the RBA; the main signal is how it interprets data, for instance the Governor’s description of the labour market as a little tight
• Ahead of November, Senate Estimates coincides with the quarterly CPI, followed by the rate decision, the Statement on Monetary Policy and more speeches

The RBA is speaking more frequently, across a wider range of settings and on more demanding topics than several years ago, yet it is still offering no commitment on where rates are headed, says Westpac Group chief economist Luci Ellis. In her note about the central bank’s communication, Ellis contends that the best guide to future policy is the way officials interpret new data, not any forward guidance.

On the RBA’s speeches page, Ellis has counted 58 public engagements for this year so far, which already equals last year’s full-year total and exceeds the 52 logged in 2024. The format has also changed: formal policy speeches are giving way to semi-scripted fireside chats and interviews in a broad array of media outlets, part of an effort to make decisions understandable to the general public while rates are climbing even though households are not the main driver of inflation.

The broader audience can muddy the picture for markets, according to Ellis, since each audience expects a different tone. Because the press conference after each meeting is meant for the public, a Governor who sounds gentler in that setting may only be conceding that the policy is painful, just as a doctor can warn that a treatment will hurt without discontinuing it. When the tone varies, Ellis says, written material prepared in advance, such as the minutes, gives a steadier indication of the Board’s views than impromptu replies.

The subject matter has turned more technical as well. Officials are spending more time on estimates of variables that cannot be observed directly, including neutral interest rates and financial conditions, and a quick look at readability scores points to recent speeches being tougher to read than the ones delivered in 2021. The RBA has also emphasised that monetary policy operates through multiple channels other than mortgage repayments, although Ellis observes that if the cashflow channel is indeed the smallest, as the Deputy Governor indicated, then a small set of households is shouldering a large burden for little influence on inflation.

The actionable conclusion is to focus on how the RBA reads the data. Ellis points out that after the September meeting the Governor characterised the labour market as a little tight, a description absent from the Board’s statement, and she regards the Deputy Governor’s hawkish remarks as unsurprising given the staff’s pessimistic assessment of supply capacity. Because Senate Estimates overlaps with the quarterly CPI release before the November decision, markets will have much to digest.