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Watch live: Bullock explains Reserve Bank interest rate decision
Reserve Bank governor Michele Bullock is explaining the board’s decision to hold interest rates steady.
Watch below.
Forecasts are an assumption, not a commitment, Bullock warns
By Millie Muroi
Bullock has emphasised the bank’s forecasts are an “assumption”, not a commitment as the Reserve Bank tackles inflation.
“It isn’t even an expectation,” she said. “It’s something to work with. As we move out with our forecast, it gets more uncertain.”
Asked to rate her confidence in getting inflation sustainably within target, Bullock said that there were signs the economy was on the “narrow path” aimed for by the RBA.
“I think the signs are good, but we’ve got to be very vigilant.”
Stage 3 tax changes won’t impact RBA forecasts
By Millie Muroi
Asked about productivity improvement, which the Reserve Bank has consistently stated as an important factor in bringing inflation down, Bullock said she was confident that productivity would return to some sort of long run trend, but that concentrating on quarterly movement was distracting.
“I think you’ve got remember that during the pandemic productivity estimates were all over the shop. They were everywhere,” she said. “Ultimately, I think productivity is going to return to the Australian economy … technology will help there’s business investment going on, I think these things are all positive for productivity.”
Asked about tax cuts and how it could fuel demand and inflation, Bullock said it wasn’t a material issue.
“The bottom line really is that…it’s same amount of money being handed to households, distributed slightly differently,” she said. “We don’t think it has any implications for our forecast.”
RBA understands people are doing it tough, Bullock says
By Millie Muroi
Reserve Bank governor Michele Bullock has said she is “not ruling anything in or out” in terms of the RBA’s next move, after opening the floor to questions in the bank’s first press conference outside a crisis.
“Hi,” she said, cutting the tension in the room, before reflecting on the trajectory of interest rates which reached close to zero during the pandemic. “That was emergency settings, it was never going to stay there forever,” she said, noting the latest inflation figure “still has a four in front of it”.
Governor of the Reserve Bank of Australia Michele Bullock.Credit: Louise Kennerley
“The last two decades prior to the pandemic, inflation was about 2 per cent. It was in the background…people weren’t focused on it,” she said. “The board does understand that people are doing it tough, and that’s why it’s really important we get inflation down. We want it back in the background again, where people aren’t worrying about it.”
Bullock is speaking after the RBA kept interest rates on hold at 4.35 per cent at their first meeting of the year, broadly in line with market expectations.
Answering the first two questions on how markets had reacted to the decision, Bullock said the RBA was looking for data that convinced them that inflation was coming back towards its target range of between 2-3 per cent.
“Markets will make their own decisions, and they’re putting their money where their mouth is on those sorts of things,” she said. “But we’re not really driven by market pricing. Really, what’s important for us is looking at the economic data. We want to see inflation continuing to decline.”
The RBA’s central forecast is that inflation will return to the target in 2024, and reach the midpoint of the target range in 2026.
About 5 per cent of borrowers not earning enough to pay their mortgage
By Rachel Clun
Here’s some more detail from the Reserve Bank following its decision to hold interest rates steady.
The RBA says about 5 per cent of borrowers could struggle to meet mortgage repayments in six months’ time, while pointing out grocery prices have risen to “considerably higher” rates than in previous years.
In its latest Statement on Monetary policy, the RBA acknowledged the latest annual inflation rate of 4.1 per cent was lower than expected, but it remains “well above target”.
The Reserve Bank estimates about 5 per cent of borrowers were not earning enough to meet essential costs and mortgage payments.Credit: Photo: Janie Barrett
While goods inflation was slowing, and grocery price inflation has “eased considerably” over the past 12 months, the RBA noted grocery prices have grown sharply over recent years.
“Grocery prices are considerably higher than there were a few years ago; grocery prices have increased by 20 per cent since early 2020, compared with an increase of 8 per cent over the prior decade,” the report said.
Services inflation has peaked, but remains elevated due to robust demand and price pressures, and rent inflation is expected to remain high over the coming year due to ongoing pressure in the rental market.
Households were continuing to adjust their budgets in response to the combined pressures of high inflation, high interest rates and a two-year decline in real disposable incomes.
“Strong growth in nominal labour incomes has been more than offset by the high rate of inflation, tax payments growing faster than incomes and the effects of higher interest rates,” the report said.
Mortgage repayments now account for a record 10 per cent of Australian households’ total disposable income, and the bank said most borrowers were well-placed to cope with higher mortgage rates by cutting spending or drawing down on saving.
However, the RBA estimated about 5 per cent of borrowers were not earning enough to meet essential costs and mortgage payments.
“Some of these borrowers are at risk of depleting their buffers within six months, which would see them fall behind on mortgage payments,” the report said.
Households have reacted to the economic pressures by slashing their spending, particularly for discretionary items and households have also saved less in response or drawn down on savings, dropping the household savings ratio has fallen below pre-pandemic levels.
“Many households have had to make difficult adjustments in response to the challenging conditions, particularly households with lower financial buffers,” the report said.
RBA governor Michele Bullock will hold her first media conference explaining the board’s decision in 15 minutes time.
Albanese resists invitation to rule out changes to negative gearing
By Paul Sakkal
Anthony Albanese has declined to categorically rule out any future changes to negative gearing tax concessions.
Asked if he had plans to get rid of the investment property tax break, Albanese cited comments from Liberal MPs Keith Wolahan and Maria Kovacic who have both previously indicating an openness to changes to negative gearing.
Prime Minister Anthony Albanese during question time today. Credit: Alex Ellinghausen
Albanese joked that the Coalition was unwilling to ask a question on the stage 3 tax changes, which have dominated debate in Canberra for the past fortnight since Labor overhauled the Morrison government’s policy.
“I tell you what we are doing about housing, we are focusing on [housing] supply,” he said.
PM tells Dutton: ‘If you were fair dinkum, you’d vote against our measure’
By Paul Sakkal
Returning to the first question time session of the year, where Anthony Albanese began by rubbishing the opposition’s response to the government’s recent policy shift on income tax.
Opposition Leader Peter Dutton used his first question to ask the prime minister if Labor would go beyond its announced tax changes and seek to alter tax arrangements for the family home.
Opposition Leader Peter Dutton and Prime Minister Anthony Albanese during question time today.Credit: Alex Ellinghausen
The Coalition announced earlier today it would not stand in the way of Labor’s changes to the Morrison-era stage 3 income tax cut policy.
“We have just introduced very significant legislation before this parliament to give every Australian a tax cut,” Albanese said. “They’ve had two weeks to think about their first question, and it has nothing to do with what we’re doing.
“Full of negativity, full of abuse. Come on – if you were fair dinkum, you’d vote against our measure and you’d commit to roll it back.”
RBA expects rate cuts by end of the year
By Shane Wright
Despite the Reserve Bank’s board’s strong language today, the bank is assuming official interest rates will be cut by year’s end.
In what, if it transpires, would be good news to millions of borrowers, the bank released its quarterly economic outlook after its board meeting today.
The cash rate is assumed to be at 3.9 per cent by year’s end, which would save someone with a $600,000 mortgage about $400 a month.Credit: Oscar Colman
Underpinning all of the forecasts, which include a slowdown in the economy and a faster-than-expected fall in inflation, are assumptions about the official cash rate.
Those assumptions, drawn from financial markets and economists, have the cash rate remaining at 4.35 per cent until the middle of the year.
But beyond that, the cash rate is assumed to be at 3.9 per cent by year’s end.
Such a reduction in interest rates would save someone with a $600,000 mortgage about $400 a month.
By the end of 2025, the bank’s forecasts are predicated on the assumption the cash rate will be around 3.4 per cent.
Further rate rises cannot be ruled out: RBA
By Rachel Clun
The Reserve Bank said it cannot rule out further interest rate rises, as inflation remains high and returning inflation to its target 2-3 per cent band is the board’s “highest priority”.
In its first collective statement, the RBA board said inflation has continued to ease but services inflation has declined more slowly and remains high.
The Reserve Bank is forecasting inflation will return to the target band in 2025.Credit: Trevor Collens
“While there are encouraging signs, the economic outlook is uncertain and the Board remains highly attentive to inflation risks,” the board said. “The board needs to be confident that inflation is moving sustainably towards the target range.
“While recent data indicate that inflation is easing, it remains high. The Board expects that it will be some time yet before inflation is sustainably in the target range.”
The bank is forecasting inflation will return to the target band in 2025.
“The path of interest rates that will best ensure that inflation returns to target in a reasonable timeframe will depend upon the data and the evolving assessment of risks, and a further increase in interest rates cannot be ruled out,” the statement read. “The board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that outcome.”
RBA holds rates steady at first two-day meeting
By Rachel Clun and Shane Wright
The Reserve Bank board has held interest rates steady at 4.35 per cent following its first-ever two-day meeting as the economy continues to slow.
Analysts and financial markets had expected the decision following a larger than expected drop in inflation in the December quarter and sluggish household spending over the holiday period.
The Reserve Bank board held its first two-day meeting this week.Credit: Louie Douvis
Inflation fell to 4.1 per cent in the year to December – its lowest level in two years – although some goods and services, including insurance premiums and rents, continued to rise.
The Reserve Bank board started its meeting on Monday to discuss the latest economic data, and RBA governor Michele Bullock will hold her first media conference at 3.30pm to explain the board’s decision.
Read more from Rachel Clun and Shane Wright here.
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2024-02-06 04:54:59Z
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