RBA's Bullock: At August board meeting, risks to outlook were skewed to the upside
Reserve Bank of Australia (RBA) Governor Michele Bullock said on Friday that risks to outlook were skewed to the upside at August board meeting.
Meanwhile, RBA Deputy Governor Andrew Hauser stated that the board fully committed to reaching inflation target.
Key quotes
Various indicators indicate labor market conditions stay near, but slightly tighter than, full employment.
At August board meeting, risks to outlook were skewed to the upside.
Developments since then indicate that while growth in the Australian economy is slowing, some upside risks to inflation seem to be materializing.
Liaison program shows many firms are passing on higher input costs.
Recent figures broadly align with expectation of demand growth easing in H1 2026.
Housing market conditions have softened, larger-than-expected easing could weigh on economic activity.
Key question is whether monetary tightening to date will be enough to return inflation to target in reasonable time.
Monetary policy positioned to address developments with focus on price stability and full employment.
Lowering inflation is crucial.
Navigating a world with prolonged elevated oil prices.
Companies now more likely to transfer cost hikes.
Decline in housing prices isn't that significant overall.
Considering if policy is tight enough.
Broad agreement that neutral interest rate has increased.
Inflation risks tilted to the upside.
Difficult to see past ongoing inflation shocks.
Market reaction
At the time of writing, the AUD/USD pair is trading 0.37% higher on the day to trade at 0.7113.
RBA FAQs
The Reserve Bank of Australia (RBA) sets interest rates and manages monetary policy for Australia. Decisions are made by a board of governors at 11 meetings a year and ad hoc emergency meetings as required. The RBA’s primary mandate is to maintain price stability, which means an inflation rate of 2-3%, but also “..to contribute to the stability of the currency, full employment, and the economic prosperity and welfare of the Australian people.” Its main tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will strengthen the Australian Dollar (AUD) and vice versa. Other RBA tools include quantitative easing and tightening.
While inflation had always traditionally been thought of as a negative factor for currencies since it lowers the value of money in general, the opposite has actually been the case in modern times with the relaxation of cross-border capital controls. Moderately higher inflation now tends to lead central banks to put up their interest rates, which in turn has the effect of attracting more capital inflows from global investors seeking a lucrative place to keep their money. This increases demand for the local currency, which in the case of Australia is the Aussie Dollar.
Macroeconomic data gauges the health of an economy and can have an impact on the value of its currency. Investors prefer to invest their capital in economies that are safe and growing rather than precarious and shrinking. Greater capital inflows increase the aggregate demand and value of the domestic currency. Classic indicators, such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can influence AUD. A strong economy may encourage the Reserve Bank of Australia to put up interest rates, also supporting AUD.
Quantitative Easing (QE) is a tool used in extreme situations when lowering interest rates is not enough to restore the flow of credit in the economy. QE is the process by which the Reserve Bank of Australia (RBA) prints Australian Dollars (AUD) for the purpose of buying assets – usually government or corporate bonds – from financial institutions, thereby providing them with much-needed liquidity. QE usually results in a weaker AUD.
Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the Reserve Bank of Australia (RBA) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the RBA stops buying more assets, and stops reinvesting the principal maturing on the bonds it already holds. It would be positive (or bullish) for the Australian Dollar.
Author
Lallalit Srijandorn
FXStreet
Lallalit Srijandorn is a Parisian at heart. She has lived in France since 2019 and now becomes a digital entrepreneur based in Paris and Bangkok.
