Lending Association

RBA policy shift goes unnoticed

A significant policy shift by the Reserve Bank has gone unnoticed amid the fuss about inflation at the beginning of the year.

Wednesday’s partial monthly inflation data for November generated excitement due to the slight decrease to 4.3% (0.1% better than the forecasted 4.4%). However, the more substantial report is expected at the end of this month, featuring the December quarter and the 2023 consumer price index (CPI).

The Australian Bureau of Statistics will release the CPI and the monthly inflation indicator for December on January 31, just six days before the first Reserve Bank board meeting of the year. This meeting will introduce some of the most significant changes to the bank’s communication policies in decades.

During the meeting, apart from determining the cash rate level, the bank will also discuss the first Statement on Monetary Policy (SMP) for 2024, along with updated economic forecasts for this year and 2025. Normally, this statement is released on the first Friday after the RBA board meeting, four times a year.

Starting from February 6, both the monetary policy statement and the SMP will be released on the same day for the first time ever, following the example of the Reserve Bank of NZ, which already follows this practice. Their next publication and OCR decision are scheduled for February 28.

Moreover, in a notable departure from its usual practices, Governor Michelle Bullock will hold her first-ever media conference on February 6 to discuss the monetary policy decision, outside the one-off media briefings during the pandemic by former Governor Philip Lowe.

Subsequently, Ms. Bullock will conduct media conferences every month after announcing the monetary policy decision, following the lead of other major central banks such as the Fed, the Bank of England, the European Central Bank, and the Bank of Canada, which also hold media conferences after policy decisions.

These are substantial changes in communication aimed at improving disclosure and transparency and are part of the changes being implemented by the Federal government. However, many of the proposed changes are still pending consideration by a Senate committee.

Wednesday’s November CPI indicator, despite media and business commentary, will not be a major factor in the deliberations leading up to the February 6 meeting. Instead, the focus will shift to the December jobs data next week and then the CPI and December monthly indicator on January 31.

Early market forecasts for the December CPI rates are 4.3% (annual) and 0.8% (quarter on quarter), with core inflation expected to drop to an annual rate of 4.4%. To be credible, the CPI will need to demonstrate a significant decline from the 5.4% annual rate in the year to September, which it is likely to achieve with a sharp drop in oil and petrol prices.

Additionally, any improvement will be driven by the 1.9% quarter on quarter rate in the December 2022 quarter, which will no longer be factored into the data. This boosted the annual headline rate to 7.8% for calendar year 2022, while the monthly indicator was at 8.4%.