Reserve Bank governor Michele Bullock hints at rate rise to stop inflation becoming entrenched
Reserve Bank governor Michele Bullock has warned of more pain to stop ‘second round’ inflation effects and is anticipating friction with other monetary policy board members on a possible rate hike.
Reserve Bank governor Michele Bullock has hinted she’s more inclined to raise interest rates again but will have to convince other monetary policy board members to accept an argument to hike so inflation doesn’t become entrenched.
Speaking metres away from a new external board member, Melinda Cilento, Ms Bullock stressed she only had one vote on the nine-member monetary policy board, which has six external, non-executive voting members who are neither part of the RBA nor Treasury.
With one board member voting against the last hike in May, the RBA chief appeared to be putting some pressure on other board members to back the case for an increase on Tuesday next week.
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By continuing you agree to our Terms and Privacy Policy.“I’m not signalling anything - I’m only one person on the board so I can’t tell you what the board will want to do,” Ms Bullock said.
“The Middle East conflict has now gone on for much longer than people thought it would - initially people were thinking it might go for a couple of months.
“There still seems to be excess demand in the economy so all we’ve really been highlighting is not a position on interest rates but highlighting ‘here are some of the risks we think might be materialising’ which are going to be important for considering whether to raise rates.”
The futures market now regards another hike as an 88 per cent chance with the big four banks expecting the RBA to raise the cash rate on Tuesday next week to a 15-year high of 4.6 per cent.
“I’m not going to talk about how I might vote. Sorry,” Ms Bullock said.
A spike in crude oil prices to four-month highs last week has pushed average diesel prices close to $3 a litre across Australia, with Ms Bullock hinting tighter monetary policy was needed to curb the prospect of entrenched inflation.
“We have to be mindful that there will be first-round effects but we need to be very careful to ensure that policy is set in a way that minimises the second round and indirect effects which might perpetuate ongoing inflation,” Ms Bullock told the Committee for Economic Development of Australia in Sydney which Ms Cilento is the chief executive of.
“That’s really the point about monetary policy.”
Ahead of Ms Bullock’s question and answer session the RBA’s chief economist Sarah Hunter, who advises the monetary policy board, said the Reserve Bank’s nine-member monetary policy board was focused on bringing down inflation, which in July was above its 2-3 per cent target for the 12th straight month.
“Obviously, we want to get inflation back down. Inflation’s just hard to live with, particularly if you’re on a low income,” she told The Pay Off podcast with Sylvia Jeffreys.
“That’s what the cost-of-living squeeze is. We want and need to get it out of the economy and that’s what the board are focused on.
“They are still very concerned about inflation and we think the risks to inflation are skewed to the upside.
“If those risks do manifest, then I think the board have been clear they have to, they will definitely be considering whether or not they will have to hike the cash rate.”
ANZ is the only big four bank expecting two hikes by November 3, that would take the cash rate to an 18-year high of 4.85 per cent but the Commonwealth Bank, Australia’s biggest home lender, on Tuesday hiked its fixed-mortgage rates by the equivalent of two RBA rate increases.
The Commonwealth Bank on Tuesday hiked its two-year fixed mortgage rate, for investors and owner-occupiers, by 48 basis points to 6.82 per cent.
That is almost the equivalent of two RBA rate hikes, adding up to 50 basis points, which would take typical variable mortgage rates above 7 per cent for the first time since late 2008 during the global financial crisis.
Two more RBA hikes on top of the February, March and May increases would mean five in total this year, adding $597 to monthly mortgage repayments on an average, new loan of $731,000.
Australian Bureau of Statistics data for August is being released on September 30, after the RBA’s next meeting and decision.
The Melbourne Cup day meeting on November 3 is taking place after the ABS releases September quarter inflation figures.
