Interest rates stay. The Reserve Bank penguins are back.

While most of the country was focused on horse racing, the Central Bank did not come as a surprise and kept rates constant. Michael Pascoe was there.

Forget the usual talk about doves and hawks fighting for supremacy in the RBA aviary; Emperor Penguins are at it again.

Pigeons want to lower the odds, hawks push them higher, but penguins sit through the famously long, dark Antarctic winter, keeping their eggs warm.

And sitting is what central bankers like to do best. Reasonably stable rates are seen as evidence that the bank has and is doing a masterful job of keeping the economy stable.

It was no surprise that the RBA kept the cash rate steady at the Melbourne Cup meeting following the jump in September quarter inflation.

Interest rate cut hopes hit as coffee causes inflation to soar

But it was a surprise that the bank made the breakthrough in reducing average inflation relatively calmly. Gov. Michele Bullock had warned before the CPI announcement that a reduced average increase of 0.9 percent would be a “significant loss.” The real increase of exactly 1 percent at the time was enough to turn some pet store galahs into full hawks, indicating that the next rate move would have to be up.

But that wasn’t the tone of Lieutenant Governor Sarah Hunter’s briefing when she locked in the media for her quarterly statement on monetary policy, the detail in the SoMP, or the tone of Governor Bullock’s media conference and the board’s official statement.

Instead of transforming into a Raptor, RBA’s plumage was remarkably relaxed.

Dr Hunter and Ms Bullock stressed that the 1% rate in the September quarter will remain a hump in the inflation calculation for next year. The shortened average forecast for this calendar and financial year has been raised to 3.2 per cent, outside the RBA’s official remit of 2 to 3 per cent and well above its target of 2.5 per cent.

But under the market assumption of just one more cash rate cut next year, the bank estimates that the reduced average will happily return to around 2.6 percent, with this September quarter’s score wiped out within a year.

The bank thinks that September was a one-off warning rather than a warning about rising inflation and therefore requires tightening the screws. As stated in the official statement:

The Board’s decision is that part of the increase in the underlying trend of inflation in the September quarter was due to temporary factors.

Particular tentative suspects were international travel, council fees and fuel.

excess demand

Dr Hunter suggested there was not enough excess demand to be squeezed. While the Board, as usual, declared the outlook uncertain (when isn’t it?), the Statement of Monetary Policy (SoMP) went a little further, calling several key assessments “highly uncertain.”

From this perspective, the penguins are at work, trying to see through the darkness of the endless night and blizzard, just sitting there unless and until conditions change.

When trying to estimate the mix of fundamental and temporary factors in September inflation and hence the inflation forecast, new housing costs have been key to the bounce and are included in the ongoing basket.

“New housing inflation forecasts, which account for 7 percent of CPI for both detached houses and apartments, have been revised higher to reflect stronger-than-expected September data as well as upward revisions to the outlook for house prices and housing investment,” SoMP said.

“CPI rent inflation, which reflects rents currently paid and has a weight of 7 percent, is also expected to be slightly higher during the forecast period.”

And yes, the government’s open-ended 5% deposit policy for first home buyers is a factor driving demand, and yes, low interest rates are also boosting demand and prices. Low interest rates are especially messy for investors’ wallets.

Welcome back to a self-reinforcing policy cycle that is contributing to our housing crisis, but targeting house prices is not the RBA’s official job.

It is the duty of the government to alleviate this long-standing crisis.

Adding extra spending fuel for first home buyers while also encouraging investor action with low interest rates makes for a foolish combination when developers can raise prices and there isn’t much trading.

So what should or could have been done? Macroprudential controls (specific controls on bank lending, such as limiting investors’ borrowing) have previously been used to dampen investor enthusiasm but under the pretext of preserving financial stability.

When asked if a dose of macros would make his job easier, Governor Bullock stuck to the idea of ​​macro being a prudential tool when there is financial stability risk, which is APRA’s concern.

So we’re stuck with the RBA’s single-blind interest rate tool, with all its collateral damage to taming animal spirits.

That’s the bad news. The good news on Tuesday was the penguin attitude and the absence of the hawk threat.

On the presser in particular, the governor said the board is “confident that inflation will come down,” saying:

We are at the right point, we need to be at that moment.

There was no tendency for loosening or tightening.

When Ms. Bullock eloquently told us in her opening statement that it was prudent for the bank to pause rate cuts, she refrained from saying, “I don’t like to say I told you so.” I think he liked saying that.

I regret it so much. RBA’s Michele Bullock tells critics pfft