Michele Bullock has been at the helm of the Reserve Bank of Australia (RBA) for more than a year, but in an important way, her tenure begins now.
The RBA’s interest-rate cut on Tuesday, the first since 2020, has been a long time coming.
She and her team will have to own this new approach, with its risks and rewards. For the moment, they are focusing on the former.
The quarter-point reduction, to 4.1%, seems a grudging one.
Inflation is still public enemy number one. The bank emphasised the labour market’s strength and projected that the clip of consumer price gains won’t return to the middle of the bank’s target zone for another few years.
Critically, officials were careful not to flag future decisions. Bullock has often deployed the phrase “not ruling anything in or out”.
The language wasn’t included in the statement, but was there in spirit.
Traders scaled back bets on further trims.
This is consistent with Bullock’s signalling since she took office in September 2023. She isn’t a big fan of central bank talk; the monetary authority had to be dragged into the era of modern communications by an independent review.
The bank was one of the last to begin holding regular press conferences, something that peers have been doing for ages.
When Bullock has spoken, she has focused squarely on inflation and has been very reluctant to get into the prediction game.
She once accused a journalist of trying to pry some forward guidance out of her, as if it was some kind of breech of etiquette.
“We have to be careful not to get ahead of ourselves,” Bullock told reporters after Tuesday’s board meeting.
Part of this hawkishness has been about putting distance between Bullock and her predecessor Philip Lowe, who was wrong-footed by inflation’s surge in 2022, as were central bank governors in most nations.
But there’s no escaping the shift in strategy this week.
She will be praised if the economy avoids a downturn, and lambasted if prices take off again.
The governor can take comfort by being part of a global coterie.
Borrowing costs have come down in the most developed and some developing economies.
If anything, Australia is a laggard.
The reticence is understandable.
Bullock was appointed when the RBA’s preferred gauge of inflation was around 6% – well in excess of the 2% to 3% goal – and officials had been engaged in the most aggressive tightening in a generation.
But the pace of price increases has been gradually slowing and in the fourth quarter of last year was just a whisker above the upper end of the bank’s range.
Bullock can plausibly declare that great progress has been made in tackling inflation and, simultaneously, argue that policy is still restrictive.
The real test of this linguistic framework will be the next cut, and the one after that.
It’s unlikely this will be one and done, however much the RBA may bristle at this characterisation.
Central banks rarely make just one hike and leave it.
Same with reductions. Decades of covering central banks tell me there will be more where this came from, even if there won’t be one at the next meeting.
By stressing that settings are still braking the economy, Bullock did leave room for additional trims even if it’s too soon to give the all-clear on prices.
The clamour for this step was great. Most Australian mortgages fluctuate with the RBA rate, unlike in the United States where many people have fixed-rate loans.
So the pain of tight policy has been keenly felt. Every rate decision is characterised in domestic media as a wait for “relief” for homeowners, who are struggling with the cost of living.
Not surprisingly, the issue has electoral potency: The ruling Australian Labor Party is trailing in polls, and an election must be called in coming months.
A stream of Labor legislators called for an easing.
While monetary authorities stress they make decisions independently, they are attentive to political currents.
To not make at least some reduction would have been to show a tin ear. It generally takes a while for a monetary chief to put their stamp on the institution. Ben Bernanke succeeded Alan Greenspan at the US Federal Reserve (Fed) in early 2006 and initially proceeded on the same path of gradual tightening as his predecessor.
It wasn’t until the financial collapse in 2008 that Bernanke began on the activist course that defined him.
Current Fed boss Jerome Powell continued the quarterly hikes initiated by Janet Yellen before easing in 2019.
Kazuo Ueda was atop the Bank of Japan for almost a year before ending the negative rates introduced by Haruhiko Kuroda in 2016.
The Bullock era is finally beginning at the RBA. — Bloomberg
Daniel Moss is a Bloomberg Opinion columnist. The views expressed here are the writer’s own.
