RBA deputy drops major hints on August rate cut chances

Cash rate decisions should be predictable and in line with market expectations, the Reserve Bank of Australia’s deputy governor has said.

Speaking in Sydney on Thursday, Andrew Hauser said the bank’s shock rate hold decision earlier this month should be viewed as an unusual occurrence.

The surprise, which stumped economists and markets, was largely spurred by geopolitical instability Mr Hauser said was a common cause for central bank unpredictability.

Reserve Bank of Australia deputy governor Andrew Hauser spoke at the Barrenjoey Economic Forum this week. Picture: RBA

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“It’s rare, but when the RBA has surprised the market to that extent before, they almost all happened in the context of very large global events when everyone was scrambling to figure out which part of the probability distribution they are actually on,” he said.

Mr Hauser said “reactions were broadly in a sensible place” after the July meeting that had left so many mortgage holders shocked.  

“We should be trying to set policy right and trying to set policy in a way that is predictable,” he said. “On the whole, those things should overlap.”

However, Mr Hauser warned not to declare the surprise decision “some sort of catastrophe”, doubling down on comments made by governor Michele Bullock about the data available to the board. 

“There were several specific challenges dating back to May,” Mr Hauser explained. “There was a dramatic set of information about the changes to what we might call the ‘rules’ of the global economy.

“We, amongst others, put out a whole range of scenarios out and about how this might play out.”

Six of the nine board members voted for the cash rate to remain on hold in July, a split Mr Hauser said positively showed debate was alive and well at the bank.

Looking ahead, Mr Hauser said the bank “wouldn’t expect this overlap between doing the right thing by the data and doing the predictable thing to be as weak as it perhaps was in July”.

The RBA has held off making a third cut to rates this year, citing a lack of comprehensive inflation data. Picture: Getty 

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With only 12 days to go until the next cash rate decision, the bank has now received crucial inflation data it felt it was lacking earlier in the month to fully support the case for a rate cut.

Mr Hauser said the June quarter inflation data published this week was “very welcome” ahead of the board’s next meeting.

Trimmed mean inflation was 2.7% in the 12 months to June – the second consecutive quarter with the measure inside the bank’s 2-3% target range.

Talk of a ‘double sized’ rate cut is also back on the cards for the first time in several months, with markets pricing in a 52% likelihood of a 0.5% cut as of 30 July.

The RBA board will meet from 11-12 August.

This article first appeared on Mortgage Choice and has been republished with permission.