Reserve Bank of Australia Governor Michelle Bullock said the council wanted to convey that it had noted the weakness of the private sector in the economy, and the improved balance between supply and demand.
She added that while core inflation is still very high, it is moving in the right direction.
Bullock confirmed in a press conference after the decision to stabilize rates: “The recent economic data were mixed and some indicators are declining, in line with our expectations.” “This has given the Council some confidence that inflationary pressures are declining, but risks still remain.”
The Reserve Bank of Australia kept the cash rate at 4.35% on Tuesday, in a widely expected decision, marking more than a year at that level.
Deutsche Bank AG said it would bring forward its first interest rate cut forecast to February, from May, following the central bank’s “dovish tilt”.
The Reserve Bank of Australia has been an anomaly among central banks this year, holding steady while peers such as the US Federal Reserve embarked on easing cycles. Australia has not been as constrained in policy as most of its peers, and as a result, it is taking longer for core rates to return to the RBA’s 2%-3% target.
Economists and markets were looking for a shift away from the central bank’s rigid concern about the path of inflation after the recent weaker data.
“The statement accompanying the decision made an unmistakable shift in the dovish direction,” said Gareth Eyre, head of Australian economics at the Commonwealth Bank of Australia. “The governor’s tone at the press conference was broadly consistent with the shift in message conveyed by the statement.”
A reporter asked Bullock if the Fed had considered cutting interest rates at Tuesday’s meeting, and she replied that it had not “explicitly,” although policymakers discussed whether current settings were appropriate.
Asked whether traders overreacted in boosting rates to the February cut and put in place two cuts by May, the governor said she believed the bank was clearly conveying its reaction function.
“I don’t want to endorse a particular market path,” she said. “But are you surprised by the market’s reaction? No, I’m not.”
Looking ahead, there are some signs that the economy is starting to recover this quarter, led by consumer spending and the labor market remains a bright spot. Figures due later this week are expected to show the unemployment rate rose to 4.2% in November, from 4.1% the previous month.
The Reserve Bank of Australia expects the unemployment rate to end the year at 4.3%, then peak at 4.5% from late 2025.
Bullock was also asked about the new Monetary Policy Committee, due to be established in March after amendments to the Reserve Bank of Australia Act are passed.
The governor said she, in collaboration with the Treasury Secretary and an unnamed independent director, had made recommendations about potential new members to Treasurer Jim Chalmers.
Bullock said she was relatively skeptical about whether unattributed votes should be made public by the new council, and whether they should make public speeches. She said she would like to consult with her members once they are appointed.
When asked what she thought of the new arrangements in her first full year of news conferences, the governor said it had been “a wild ride for me.”
