Bank Governor Michele Bullock has warned that Australia’s battle with inflation is far from over, urging borrowers to be patient as the bank works through difficult times with forecasting and communications.
Speaking in Melbourne this week, Ms Bullock said the RBA’s first rate hike in more than two years this month was the result of careful analysis.
It comes after mounting criticism over the board’s mixed messaging in recent months, as its forecasts have shifted sharply from a rate cut to a rate hike.
“Predicting is not easy, it’s not a science,” said Ms. Bullock.
“What you’re doing is summing up the individual decisions of millions of Australians and trying to fit them into one equation, and it doesn’t work that way.”
The bank’s decision to raise rates by 0.25% to 3.85% was widely predicted by markets, Ms Bullock admitted the decision was clear and board meeting minutes confirmed the decision.
The Reserve Bank is facing difficulties in forecasting. Photo: Getty
“It was recognized in February that inflation is very high and the forecast was that it will not return to the topic soon without taking some action,” he explained.
“We know that the data we get is old, but that’s where we start and we have to use what we know to think about what it will mean going forward.
“We are not looking back, but predicting is difficult and we are doing our best.”
While political tensions overseas featured in many of the board’s communications over the past 12 months as a concern, Ms Bullock said the board hoped inflationary pressures had more to do with domestic issues.
“The economy is a form of sustainability and that’s where judgment is difficult,” he said.
“We do not have a situation where it is clear what we have to do.
“We’ve reached a point where things are close, maybe a little tight, and that’s why people have to be patient.”
Governor Bullock agreed that the bank “needs to be accountable to the public” but was quick to point the finger at the bank’s critics.
“There are a lot of people out there who know for sure what we should be doing,” he said. “I’ve never had that level of confidence, I’ve always had a little bit of doubt.
The Reserve Bank Board says it intends to discuss different points of view. Photo: John Appleyard.
“There are people out there who have strong opinions. We engage with those opinions, we argue with those opinions and we turn those opinions inside out in the way people would expect.”
The bank’s positive attitude would be a great tribute to its ability to think clearly, he added.
“What I would really like is for people to be able to say that they disagree with that [RBA] what you’re saying, but they understand why we’re saying it and trust that we’ve done the work we need to understand it.
“Economics is about judgement. Reasonable people can differ as we see every day.”
Ms Bullock says that different views are welcomed in the bank’s ideas. Photo: Christian Gillies
How a bank chooses to communicate with the public has long been a matter of interest. Markets rely on the RBA’s word, words and signals and borrowers and home owners are directly affected by what the bank chooses to disclose.
The RBA is currently in the process of developing its communication approach, moving from a tactical to a strategic approach.
“We are trying to be more strategic in communications now, to identify areas where we need to communicate more or change our message,” Ms. Bullock explained.
“There is a layer between those communications, some parts are technical, some parts are simple.”
Focusing on repeating key messages is one way.
“There’s a misconception held by a few people that inflation means prices will go down,” Ms Bullock said. “Putting out the message that I have been repeating is that we are reducing inflation but the prices are not falling, that means they are not growing fast.
“For some people, that’s a subtle message and they don’t get it, but these are the types of things we’re trying to reverse.”
The bank’s next monetary policy decision will come on March 17.
This article originally appeared on Mortgage Choice and has been republished with permission.
