RBA’s Bullock: Components of monthly CPI little higher than expected, inflation not running away
Reserve Bank of Australia (RBA) Governor Michele Bullock is speaking at a press conference following the announcement of the September monetary policy decision on Tuesday.
Earlier this Tuesday, the RBA held the benchmark interest rate steady at 3.6%, as widely expected.
Key quotes
Board sees risks as broadly balanced.
Economy in a good spot.
Components of monthly CPI little higher than expected, inflation not running away.
Not giving forward guidance, will have more data in November.
If economy is recovering that is really good news.
Lowering inflation is not lowering the price level, but lowering the rate in which price is increasing.
There has been a bit of an upside surprise on inflation and activity data.
We'll make November decision based on the data
Have to see if data will point us towards holding rates again or cutting again.
Policy is a little bit restrictive, not expansionary.
Impact of past easing still to come.
Monthly CPI is volatile, but there is some information in it.
Could be couple more rate cuts, could be not.
Our focus will not be on the monthly trimmed mean, will remain on quarterly.
We are aiming at 2.5% for core inflation, will have to think about policy if not going there.
Market services inflation is a bit sticky.
Market reaction
AUD/USD is holding higher ground above 0.6600 on the above comments, adding 0.41% on the day, as of writing.
Central banks FAQs
Central Banks have a key mandate which is making sure that there is price stability in a country or region. Economies are constantly facing inflation or deflation when prices for certain goods and services are fluctuating. Constant rising prices for the same goods means inflation, constant lowered prices for the same goods means deflation. It is the task of the central bank to keep the demand in line by tweaking its policy rate. For the biggest central banks like the US Federal Reserve (Fed), the European Central Bank (ECB) or the Bank of England (BoE), the mandate is to keep inflation close to 2%.
A central bank has one important tool at its disposal to get inflation higher or lower, and that is by tweaking its benchmark policy rate, commonly known as interest rate. On pre-communicated moments, the central bank will issue a statement with its policy rate and provide additional reasoning on why it is either remaining or changing (cutting or hiking) it. Local banks will adjust their savings and lending rates accordingly, which in turn will make it either harder or easier for people to earn on their savings or for companies to take out loans and make investments in their businesses. When the central bank hikes interest rates substantially, this is called monetary tightening. When it is cutting its benchmark rate, it is called monetary easing.
A central bank is often politically independent. Members of the central bank policy board are passing through a series of panels and hearings before being appointed to a policy board seat. Each member in that board often has a certain conviction on how the central bank should control inflation and the subsequent monetary policy. Members that want a very loose monetary policy, with low rates and cheap lending, to boost the economy substantially while being content to see inflation slightly above 2%, are called ‘doves’. Members that rather want to see higher rates to reward savings and want to keep a lit on inflation at all time are called ‘hawks’ and will not rest until inflation is at or just below 2%.
Normally, there is a chairman or president who leads each meeting, needs to create a consensus between the hawks or doves and has his or her final say when it would come down to a vote split to avoid a 50-50 tie on whether the current policy should be adjusted. The chairman will deliver speeches which often can be followed live, where the current monetary stance and outlook is being communicated. A central bank will try to push forward its monetary policy without triggering violent swings in rates, equities, or its currency. All members of the central bank will channel their stance toward the markets in advance of a policy meeting event. A few days before a policy meeting takes place until the new policy has been communicated, members are forbidden to talk publicly. This is called the blackout period.
Author
Dhwani Mehta
FXStreet
Residing in Mumbai (India), Dhwani is a Senior Analyst and Manager of the Asian session at FXStreet. She has over 10 years of experience in analyzing and covering the global financial markets, with specialization in Forex and commodities markets.
