Bullock Speech: RBA Governor sheds light on interest rate path after standing pat

Reserve Bank of Australia (RBA) Governor Michele Bullock is addressing the press conference following the March monetary policy announcement.

Bullock is taking questions from the press, as part of a new reporting format for the central bank.

At its March policy meeting, the RBA kept the policy rate unadjusted at 4.35% for the third meeting in a row. The central bank, however, remained non-committal on the next interest rate move.

RBA press conference key highlights

Keeping keen eye on employment numbers.

Risks to outlook are finely balanced.

War isnt yet won on inflation.

Change statement language in response to data.

Board sees risks on both sides for policy.

Need to be much more confident on inflation coming down to consider rate cut.

The board considers a range of possibilities on policy.

We are responding to data as the data comes out.

We can't rule anything in or out.

Non-accelerating inflation rate of unemployment (NAIRU) could be between 4.0% and 4.5% but uncertain.

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This section below was published at 03:30 GMT to cover the Reserve Bank of Australia's monetary policy announcements and the initial market reaction.

The Reserve Bank of Australia (RBA) board members decided to hold the Official Cash Rate (OCR) steady at 4.35% after its March monetary policy meeting on Tuesday.

The policy announcement was widely expected by the markets. The RBA extended its pause for the third meeting in a row, having lifted the rate by 25 basis points (bps) in November.

RBA’s Governor Michele Bullock presented the monetary policy statement, with the key takeaways noted below.

Board remains resolute in its determination to return inflation to target.

Inflation continues to moderate but remains high. Recent information suggests that inflation continues to moderate.

Services inflation remains elevated, and is moderating at a more gradual pace.

Board is  not ruling anything in or out on interest rates.

The data are consistent with continuing excess demand in the economy and strong domestic cost pressures, both for labour and non-labour inputs.

Higher interest rates are working to establish a more sustainable balance between aggregate demand and supply in the economy.

The board expects that it will be some time yet before inflation is sustainably in the target range.

Accordingly, conditions in the labour market continue to ease gradually, although they remain tighter than is consistent with sustained full employment and inflation at target.

While recent data indicate that inflation is easing, it remains high.

While there are encouraging signs that inflation is moderating, the economic outlook remains uncertain.

AUD/USD reaction to the RBA interest rate decision

The Australian Dollar is seeing renewed selling pressure in an immediate reaction to the RBA’s expected pause. The AUD/USD pair is losing 0.15% on the day to trade near 0.6550.

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This section below was published on March 18 at 21:00 GMT as a preview of the Reserve Bank of Australia (RBA) policy announcements.

• Interest rate in Australia is seen on hold at 4.35% for the third consecutive meeting in March.
• Reserve Bank of Australia Governor Michele Bullock will hold a press conference at 04:30 GMT.
• The language in the RBA’s statement and Bullock’s presser hold the key for the Australian Dollar.

The Reserve Bank of Australia (RBA) is widely expected to hold the Official Cash Rate (OCR) steady at a 12-year high of 4.35% following the conclusion of its March monetary policy meeting on Tuesday. The decision will be announced at 03:30 GMT.

With a rates on-hold decision fully baked in, the Australian Dollar’s fate hinges on the tone or language in the policy statement, as well as on Governor Michele Bullock’s comments during the post-policy press conference. The presser will be held at 04:30 GMT.

Reserve Bank of Australia expected to extend the pause, but what’s next?

The RBA is set to extend the pause into the third meeting in a row when it meets on Tuesday. Markets, however, will be focused on fresh signals offered by the central bank on the timing and the scope of a policy pivot.

Economists are divided, with some forecasting an RBA interest rate cut not until November while some expect the Bank to begin lowering rates in September. Amidst the uncertainty around the timing of the rate cut, RBA Governor Michele Bullock’s outlook on inflation and the policy rate will hold the key, as she would take account of slowing economic growth and price pressures.

Data from the Australian Bureau of Statistics (ABS) showed the Consumer Price Index (CPI) rose 0.6% in the fourth quarter (Q4) of last year, under market forecasts for a 0.8% increase. A closely watched measure of core inflation, the trimmed mean, rose 0.8% in the same period, below expectations of a 0.9% increase.

The latest monthly inflation data for January showed that the CPI rose at an annual rate of 3.4%, at the same pace as seen in December while a tad lower than the estimate of 3.5%. Meanwhile, Australia’s annual growth slowed to 1.5% in Q4 from 2.1% the previous quarter, registering its lowest since early 2021.

But, the services inflation, measured by the Wage Price Index, increased 4.2% YoY in Q4, up from a revised 4.1% gain in the third quarter and above the market estimate of 4.1%. The reading was the highest since Q1 2009, with pay growth in both the public and private sectors. 

Even though wage inflation remains at elevated levels, Governor Bullock remains confident that it will come down. Testifying before the Australian Parliament last month, Bullock said that “inflation is being persistent, particularly in services. But it is coming down.”

Does this indicate a potential dovish shift in the central bank’s language in the upcoming meeting?

Previewing the RBA policy decision, analysts at TD Securities (TDS) explained, “it should be a fairly straightforward on-hold decision, though the focus will be if the RBA retains its soft hawkish bias. The jobs market has shown cracks after the dismal Dec-Jan prints while monthly CPI reaffirms the disinflation narrative, with the near-term inflation impulse towards the downside. We will keep an eye out on QT plans as the RBA has kept strangely quiet about it.”

How will the RBA interest rate decision impact AUD/USD?

The Australian Dollar (AUD) has entered corrective mode after reaching fresh two-month highs at 0.6667 against the US Dollar last week. The AUD/USD pair could see an extended pullback if Governor Bullock delivers a dovish message, acknowledging the economic slowdown and the gradual decline in inflation. On the other hand, AUD/USD could revert toward multi-month highs should the RBA policymakers retain their hawkish stance.

In its February policy statement, the RBA said that “Further increase in interest rates can't be ruled out, adding that the board needs to be confident that inflation is moving sustainably towards the target range.”

Dhwani Mehta, Asian Session Lead Analyst at FXStreet, notes key technicals to trade AUD/USD on the policy outcome. “AUD/USD is challenging a powerful confluence support area near 0.6560 in the lead-up to the RBA showdown. That zone is the intersection of the 21-, 50- and 200-day Simple Moving Averages (SMA). The 14-day Relative Strength Index (RSI) is battling the 50 level, suggesting that the pair lacks a clear directional bias ahead of the RBA interest rate decision.” 

Dhwani adds: “Aussie buyers need to defend the abovementioned key support near 0.6560 on a daily closing basis to attempt a rebound toward the previous week’s high of 0.6638. The next upside barrier is seen at the 0.6700 round figure. Conversely, a downside break of the 0.6560 support could trigger a fresh downtrend toward the 0.6500 level.  The last line of defense for buyers is seen at 0.6479, the March 5 low.”