Bullock says March meeting ‘live’, reflects on ‘pretty orderly’ reaction from markets to Iran war
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More news: RBA governor Michele Bullock has warned there is a risk inflation expectations could rise if the Iran war continues for a prolonged period but said the markets have reacted in a “pretty orderly” fashion so far.
And she discouraged economic commentators and forecasters from ruling out a March rate rise, with most expecting the central bank will sit on its hands until May when a full quarterly set of inflation figures is published.
“Every meeting is live,” Bullock said about the upcoming March board meeting, despite the majority of economic forecasters anticipating a May move following the release of quarterly inflation data.
She said this did not count as a prediction or guidance but emphasised the board would be “actively” considering whether it needs to move more quickly than May with inflation currently higher than target.
“The first point to make is it’s very early days [in the Middle East conflict],” Bullock said, in response to questions about the Iran war after her keynote address.
She noted oil prices and gas prices have risen and yields have moved a bit, but the market reaction had been “pretty orderly”.
The RBA is keeping a close eye on expectations about monetary policy, which could prompt a rate rise if they rise sharply on the back of the conflict.
She said the RBA previously had been undertaking conceptual thinking about the impacts of prolonged energy market disruptions.
If this was “a very prolonged conflict and there is very elevated and lengthy rise in energy prices this ultimately is going to feed through into economic activity”, she said, with people spending more on petrol having less to spend on other things, which may affect consumption and it could affect business investment.
“It’s not 100% clear in our case and one thing that we are doing is … more work on particular scenarios,” Bullock said.
She reflected back on the RBA’s work on the potential trade war outlook and said the central bank would undertake similar scenario analysis of energy prices and the war.
‘Too early to say’: RBA governor says central bank will assess inflation impact from Iran war
The news: Reserve Bank Michele Bullock said the central bank will look carefully at the implications for the economy and inflation from the Iran war and unfolding events in the Middle East.
But she said it was “too early to say” at this point what the impact might be on inflation, global economic growth and inflation.
The context: Bullock delivered a keynote speech, which was largely prepared remarks written ahead of the weekend’s strikes on Iran, at the AFR Business Summit on Tuesday morning.
But she provided the RBA’s latest thinking on Iran and potential implications for Australian policymakers.
“The past few days have seen a significant escalation in conflict and instability in the Middle East, which is deeply concerning. The human cost I think is particularly regrettable and we sincerely hope conditions improve quickly for civilians affected,” Bullock said.
“But these events are a timely reminder that in this world of geopolitical uncertainty things can change quickly.”
She referred to her reluctance to provide guidance on monetary policy and referred to the events on the weekend as one of the justifications for this position amid an uncertain world.
“It would be wrong for us to pretend we have greater certainty than we do,” she said.
Economists have been describing the Iran war as having “mixed” implications for the RBA.
What they said: “It’s too early to say what the economic impact will be. Events are moving rapidly and there are different ways that this can play out,” Bullock said.
“We’re going to take some time to make some sense of what it could mean for inflation here. A supply shock of this nature, for example, could add to inflation pressures and the potential implications for inflation expectations also is something that we’re very alert to,” she said.
“At the same time, a prolonged impact on energy markets could have adverse effects on economic activity and result in downward pressure on inflation and it’s not obvious how this might play out.”
The source: Michele Bullock speech
