Reserve Bank of Australia (RBA) Governor Michelle Bullock was speaking at a press conference following the release of the September monetary policy decision on Tuesday.
Blok was answering questions from the media as part of a new reporting format the central bank is introducing this year.
At its September policy meeting, the Reserve Bank of Australia (RBA) kept its benchmark interest rate unchanged at 4.35% for the seventh consecutive meeting.
Important Quotes
Recent data have not had a significant impact on policy outlook.
For the time being, interest rates will remain unchanged.
Underlying inflation is expected to continue to develop slowly in the third quarter.
Second-quarter GDP data suggests the near-term outlook is weakening slightly.
There is also a risk that consumption will remain sluggish.
The meeting did not explicitly discuss raising interest rates.
The format of the discussion changed at this meeting.
Monthly inflation data has been highly volatile.
Energy prices are expected to fall due to cost of living relief.
Headline CPI is likely to be in the range of 2-3%.
It does not reflect underlying inflation trends very well.
Pricing tailored to local conditions.
The board debated whether to change its policy message.
The message is that the Governing Council is not considering cutting interest rates in the near term.
We are prepared to respond in either direction depending on the data.
We have not yet considered the extent to which interest rates will ultimately be lowered.
We plan to discuss how big a move that will be when the time comes.
If our interest rates remain unchanged whilst other countries cut interest rates this will support the Australian dollar.
We aim to avoid a recession, but we cannot guarantee it.
Market reaction
AUD/USD continues to hold gains near the 2024 highs following the above comments, and is up 0.37% from the previous day at around 0.6865 at the time of writing.
RBA FAQ
The Reserve Bank of Australia (RBA) sets interest rates and manages monetary policy in Australia. Decisions are made at 11 board meetings per year and ad-hoc emergency meetings as necessary. The RBA's primary mission is to maintain price stability (i.e. inflation between 2-3%), but also to “contribute to monetary stability, full employment and the economic prosperity and well-being of the Australian people”. Its main tool for achieving this goal is to raise or lower interest rates. Relatively higher interest rates will strengthen the Australian dollar (AUD) and vice versa. The RBA's other tools include quantitative easing and tightening.
Inflation has always been considered a negative factor for currencies as it generally reduces the value of money, but the opposite has become true in modern times due to the relaxation of cross-border capital controls. Moderately high inflation tends to cause central banks to raise interest rates, which has the effect of increasing capital inflows from investors around the world looking for a favorable place to park their funds. This increases the demand for the local currency, which in Australia's case is the Australian dollar.
Macroeconomic data measures the health of the economy and can affect the value of the currency. Investors prefer to put their capital in a safe and growing economy rather than an unstable and contracting one. Increased capital inflows increase aggregate demand and the value of the domestic currency. Common indicators such as GDP, manufacturing and services PMI, employment, and consumer sentiment surveys can affect the AUD. If the economy is doing well, the Reserve Bank of Australia may raise interest rates, supporting the AUD.
Quantitative easing (QE) is a tool used in extreme situations when lowering interest rates is not enough to restore the flow of credit in the economy. QE is the process by which the Reserve Bank of Australia (RBA) prints Australian dollars (AUD) to buy assets (usually government or corporate bonds) from financial institutions, providing them with much-needed liquidity. QE typically results in a weakening of the AUD.
Quantitative tightening (QT) is the opposite of QE. It is implemented after QE when the economic recovery is underway and inflation starts to rise. In QE, the Reserve Bank of Australia (RBA) provides liquidity by purchasing government and corporate bonds from financial institutions, but in QT, the RBA stops purchasing further assets and stops reinvesting principal on maturing bonds it already holds. This will be positive (or bullish) for the Australian dollar.
