RBA Bullock: Will Take Action If Forecasts Are Slightly Wrong

By Sophia Rodrigues

(Sydney, November 10, 2022)—The Reserve Bank of Australia will “take action” if it is “slightly wrong” on its forecasts which in the Statement on Monetary Policy is predicated on the cash rate rising to 3.5% by mid-2023, Deputy Governor Michele Bullock said Thursday.

Bullock made the comments in her appearance before the Senate Economics Legislation Committee along with Assistant Governor Christopher Kent on Thursday.

“If we don’t follow that path; that will have implications for our forecasts,” Bullock said.

On one occasion Bullock noted the RBA has raised the cash rate substantially from emergency level and is now getting to a point “maybe” where there might be an “opportunity to sit and wait and look a bit about what’s going to happen next.”

She also added that interest rates “probably” have to go up a little further, but the RBA is not set on the timing and the amount.

At a prepared speech on Wednesday, Bullock had said that “it is expected that further increases in interest rates will be required to meet this objective. The size and timing of future increases, however, will depend on the data.”

Bullock acknowledged the recent retail sales data may be pointing to some slowing in demand and the RBA is hoping demand has slowed but will look for evidence.

On another occasion in response to a question on inflation psychology, Bullock said the RBA wants to ensure people understand it will do what it takes to get inflation back to target.

“If we are slightly wrong on our forecasts, we would be looking at them, learning from them and taking action on them,” she said.

One interesting question was on whether the RBA is confident it will navigate the narrow path and what probability it puts to succeeding in doing so.

Bullock said the RBA’s “intention is to try and land on that narrow path.” To bring inflation down without causing unemployment rate to rise too much is our intention, she said.

On probability, Bullock answered by pointed to confidence intervals in the latest forecasts, adding they are wide.

--Contact: Sophia@centralbankintel.com