-- Australia’s central bank chief Michele Bullock is struggling to persuade money markets and economists with her hawkish message, in a sign that the Reserve Bank has work to do to win back credibility lost during the pandemic.The RBA this week used minutes of its August meeting to convey how seriously it considered raising interest rates before opting to keep them higher for longer. While the statement made it clear a cut on its cash rate currently at a 12-year high of 4.
The RBA took on a significant challenge during the post-Covid tightening cycle — begun under Bullock’s predecessor Philip Lowe — by choosing to raise rates less than peers in a bet that it could bring down inflation without damaging the labor market. The result has been a benchmark that’s about 1 percentage point lower than the Fed’s and a slower cooling in inflation than many global peers.
“No one knows how loose the labor market needs to be to have inflation consistent with target,” Strickland said. “Greater clarification on what full employment actually means for the RBA and how much tolerance the board has on its inflation target would help clarify uncertainties.”The RBA’s reputation took several hits during the pandemic and shortly after, following forecasting and other errors.
One important factor in Bullock’s favor is that if the RBA does end up cutting rates earlier than it suggested, few will complain, unlike with a rate hike.