Bond markets moved quickly today after Michele Bullock made it clear that “every meeting is live”, pushing back against the market’s long-held assumption that the Reserve Bank of Australia would wait for quarterly inflation data before acting again. The shift in tone has materially lifted expectations for another rate hike as soon as March 17, now sitting at a ~28% probability, while a May hike is now fully priced in.
Speaking at the AFR Business Summit, Bullock signalled:
- The Board is “actively looking” at whether it needs to move more quickly
- Policy decisions are not constrained to quarterly CPI cycles
- If inflation expectations become entrenched, rates “are going to have to respond”
The risk for the RBA (and the market) is tightening into a slowing economy. Household balance sheets are already stretched, fiscal settings are uncertain ahead of the May budget, and leading indicators have softened, which begs the question, why would the RBA pull the trigger without knowing what the budget will deliver? We doubt they will.
