RBA chief economist Sarah Hunter warns central bank forecasts not cut and dry
Make us a preferred source
Make us a preferred source on Google
The news: Reserve Bank of Australia assistant governor of economics Sarah Hunter has warned against putting too much stock in the central bank's main forecasts as the Trump era continues to shift the outlook.
She emphasised that the board was making decisions in an “uncertain environment” and needed to think about risks to the central forecast. She then cited "US policy settings" as a major focus of the board.
The RBA has continually said it will remain “data dependent” in deciding whether to adjust interest rates. But in a speech in Sydney on Tuesday morning, Hunter said that the link between the central bank’s forecasts and the policy decision is “not mechanical”.
“The main reason for this is that there are always risks and uncertainties around the central forecast; the baseline pathway is just one of a vast number of possible outcomes,” she said.
The numbers: The Reserve Bank cut rates by 25 basis points to 4.15% at its February meeting. It next decides on monetary policy on April 1.
The central bank is clearly very focused on the lagged impacts of its ramp up in interest rates, with Hunter noting that it takes roughly nine months for the cash rate to have its biggest impact on GDP but “the peak effect on inflation is estimated to take nearly twice as long”.
On this basis, she noted that decisions taken now will affect the economy at the end of 2025 and inflation mid-next year.
What they said: "Board decisions are always made in an uncertain environment, which means thinking about the distribution of risks around the central forecast. One of the things we are focused on right now is US policy settings, the impact of these on the global economy and how this flows through to activity and inflation here in Australia; we have been using scenarios, analysis and judgement to assess the policy implications," Hunter said.
"The RBA’s policy decisions are made in the context of various risks and uncertainties," she said.
"The Board considers a wide range of possible outcomes and uses scenarios, analysis and judgment to assess the implications of different policy paths, ensuring a balanced and forward-looking approach. This is why being forward looking is not in tension with being data dependent."
The source: Reserve Bank speech
