RBA Governor Bullock stated that confidence in achieving inflation targets remains intact, although not complete. The current approach is to wait for more data to ensure inflation aligns with forecasts.
Bullock indicated that central forecasts are being met reasonably well, but uncertainty about future inflation trends persists. The RBA is cautious about continuing to cut rates, a concern shared by many major central banks, particularly in light of potential impacts from Trump tariffs.
Inflation Outlook And External Risks
This statement from Bullock suggests that while progress is being made toward bringing inflation closer to target, the Reserve Bank still sees risks that could alter the outlook. Inflation appears to be tracking forecasts, at least for the moment. However, there’s hesitation to declare objectives met entirely—something we can understand, given the external variables influencing global markets.
The caution she expressed around holding off on rate reductions isn’t unique. Other monetary authorities appear equally hesitant. What stands out here is her mention of tariffs tied to the United States’ political cycle, particularly those alluded to by one former president. This nod reflects a broader awareness: decisions outside Australia’s direct control could push prices higher again, even if domestic conditions improve.
In the next few weeks, derivatives tied to short-term rates may show more sensitivity than usual. If more data confirms that price pressures are easing steadily, expectations might adjust towards a longer pause in policy changes rather than cuts. Yield curves could flatten marginally, while implied volatilities may find limited upside unless a fresh catalyst appears. Of course, this depends on whether upcoming releases support the present narrative.
Market Reactions And Policy Sentiment
Forward guidance itself hasn’t changed materially, but we’ve seen before how fast sentiment can shift after one or two surprise prints. It isn’t only about the numbers—it’s also about how they fit with the trajectory established earlier. When Bullock says they’re waiting for more information, what she means is this: they’re not convinced inflation has settled enough to act with confidence.
Price action around rate expectations might get choppier, especially if speculation grows around the timing of the next move. Watching term structure swaps could offer clues on when conviction builds. For now, there’s more likelihood of repricing in response to soft surprises than to firm ones. As such, any positioning built on imminent normalisation of policy rates could face headwinds.
Those short volatility may want to reassess, particularly near key inflation and wage data in early releases. It wouldn’t take much deviation to tempt re-pricing across the curve. The appetite for risk premium remains moderate, but we should prepare for that to change quickly, depending on what’s signalled through fiscal developments overseas or shifts in commodity inputs.
These subtle indicators are useful guides. We don’t need major revisions in the forward path to see effects ripple across options and swaps. Sometimes all it takes is a shift in tone or a slightly different emphasis on growth versus price stability in meeting minutes. Bulls in long-end futures may grow cautious if signs point to sticky cost pressures. On the other hand, dovish bets could unwind sharply if foreign tariffs begin affecting trade-sensitive sectors. The RBA’s watching those developments carefully. We should too.
