Australian interest rates may not fall as much as in other countries, Reserve Bank of Australia Governor Michele Bullock said.
Addressing a news conference after the surprise decision to keep the official cash interest rate on hold at 3.85%, the head of the central bank said the RBA Board’s strategy was to bring inflation down while avoiding a sharp rise in unemployment.
“This strategy has meant that we didn't take rates as high as some other countries, and so it may be that we don't need to reduce rates as much as some other countries have done,” Bullock said.
The decision flew in the face of market expectations of a 25-basis point cut to 3.60% of the rate which flows through the economy to lending and deposit rates.
Asked if the RBA had effectively communicated with the public and markets or saw value in “recalibrating” market expectations, she said the RBA’s interpretation of employment and inflation data was different from those of others.
“What I would say is that what the decision today was about was about timing rather than direction (of rates),” she said.
The central bank understood that households with mortgages were keen to see interest rates decline because it helped them with their cash flows.
“I'm also really conscious that we don't want to end up having to fight inflation again. We want to make sure we've nailed it,” she said.
Since the agreement with the Government did not identify how she or the other Board members voted, Bullock declined to disclose how they voted.
She noted some people had focused on the monthly inflation data but it was too volatile to be relied on as a guide for monetary policy.
The central bank was still waiting to confirm whether inflation was on track to sustainably reach 2.5% but some components suggested underlying inflation in the June quarter could be a little higher than forecast.
At its next meeting in five weeks the Board will have the June quarter inflation data, another reading of the labour market and more information about international developments.
“So the board decided to wait a few weeks to confirm that we're still on track to meet our inflation and employment objectives,” Bullock said.
