RBA’s Bullock warns of renewed price in policy outlook

Bullock of the RBA cautions against a resurgence of inflation, saying the central bank will respond if price pressure recurs

ContentsRBA monitors the trends of inflationMarket expectations shift after Bullock’s remarksViews differ on the next policy moveThe Governor of the Reserve Bank of Australia sent the message during a parliamentary hearing in Canberra, underscoring that the board is on the lookout for any signs of a new wave of demand-driven inflation.

RBA monitors the trends of inflation

Michele Bullock told them that the bank is monitoring consumer price information that will be revealed in the months to come. She added that the firm increase in prices would mean that the pressure exerted by demand is solid. Her remarks indicated that authorities may tighten policy if inflation does not abate as it should. Sources noted that these indicators can provide future monetary choices. Bullock also added that the bank is mindful that inflation pressures may be rising, and that it will take action should the board require it.

Market expectations shift after Bullock’s remarks

Traders’ forecasts of the rate changed after her remarks. In the markets, the probability of the August next-year rate increase is now 50%, in contrast to the expectation made in November. The yields of three government bond years also increased slightly. The comments preceded the third-quarter GDP figures, which are forecast to record a 0.7% growth. This would mark the first time of an increased growth rate since the end of 2022.

The analysts believe the RBA will not change the cash rate at next week’s policy meeting as expectations are for it to be maintained at 3.6%. Bullock was questioned concerning the economy at large, and he replied that it is hard to determine whether the conditions are doing better than predicted. She observed that the output gap appears to be closed, implying that the increase in demand at once will generate higher price returns. She mentioned that upward inflationary pressure would be introduced by rising demand.

Views differ on the next policy move

Economists are at a crossroads over the RBA’s next move. It is forecast that the rate might decline next year, some may remain constant, and some may even increase. According to reports, the RBA has lowered its key interest rate three times since February and is now at its lowest since April 2023. The data-driven strategy was implemented by the bank when the third-quarter inflation rose to a point that was more than two to three percent above the target. This has occurred amid a strong labour market.

Recent statistics indicate economic vibrancy. In November, home prices did not decrease. The level of investment in businesses was better than what was expected during the September quarter. Consumer expenditure was stable. The developments have prompted some analysts at big banks to warn that an interest rate rise in 2026 is still possible.

The remarks of Bullock point out the cautious approach of the RBA as it observes the risks of inflation. Demand and prices will indicate the direction of the board’s next move.