- Inflation was already too high, reflecting the fact that demand was outstripping supply
- The cash rate was not high enough to bring inflation back to the target
- Higher petrol prices will add to inflation but they were not the reason for today’s decision
- The risks to inflation have tilted to the upside
- We must also make sure that higher inflation does not lead to inflation expectations moving higher
- Will continue to be guided by incoming data
And now remarks from the Q&A session:
- All members agreed that inflation was too high
- Members voting to hold was voting to do so in a hawkish sense
- The discussion was about timing, not direction of policy setting
- Middle East uncertainty is what led to differing views on timing of rate hike
- There was consideration to hold off until May
- The main issue was not monetary policy direction, just timing and balance of risks tied to Middle East conflict
- The risks for inflation are more to the upside with regards to employment, rather than the downside
- If we don’t bring excess demand down now, businesses will build higher prices into their costs
- And that will make it even worse for everyone
- Adjusting cash rate is the only monetary policy instrument that we have
Her clarification on the vote split sheds a lot of light as to how the central bank is actually feeling. At the balance, it definitely sounds more hawkish than what the 5-4 vote split suggested at the face of it earlier. And Bullock also mentions that higher petrol prices “is just another problem” and that if they don’t take a more proactive step, it could give rise to second-round effects.
AUD/USD was keeping around 0.7060 earlier before she spoke but is now holding around 0.7070 on the day.
