Board uncertain if financial conditions sufficiently restrictive to return inflation to midpoint of target in reasonable timeframe
Range of indicators tell us that labour market conditions are tight
Economic data since Feb rate hike support that move
Underlying demand in economy further from supply potential than we had assessed
Large part of unexpected increase in inflation was sector-specific, likely to ease
Board remains focused on returning inflation to target
Too early to say what impact will be, events are moving rapidly
Believe we are well positioned for policy to respond if required
A supply shock could add to inflation pressures
Events in Middle East a reminder of geopolitical uncertainty
But prolonged shock could also have adverse effects on global economic activity
Reserve Bank of Australia Governor Michele Bullock continues with a hawkish and vigilant stance after hiking last month. She emphasized that the central bank remains strictly focused on returning inflation to its target midpoint. Following a February rate hike, she noted that subsequent economic data has justified the move, as underlying demand in the Australian economy appears further from supply potential than previously assessed.
Bullock expressed specific concern regarding the labor market, citing a range of indicators that suggest conditions remain tight. While some recent inflation spikes were sector-specific and expected to ease, the Board remains uncertain if current financial conditions are sufficiently restrictive to meet inflation goals within a reasonable timeframe.
Furthermore, she warned of intensifying geopolitical risks, specifically noting that events in the Middle East serve as a reminder of supply shock potential. She cautioned that a prolonged global shock could have adverse effects on broader economic activity, though she believes the RBA is well-positioned to respond to rapidly moving events as required.
AUD/USD held up pretty well despite the war in Iran. It fell at the open but repeatedly fought its way back and is wrapping up the day down just 25 pips to 0.7089.
Update:
More from Bullock:
Markets have been orderly in wake of Mid East conflict
Implications for Australia are mixed as we are a net energy exporter
If conflict is prolonged, rising energy prices might impact consumption
We do have inflation that is already elevated, need to watch inflation expectations
Still trying to get inflation down in a reasonable timeframe
Have to be patient as board sifts through information
Board is really focused on inflation expectations
Every board meeting is live
