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Gulf Press > Business > Forex > RBA’s Bullock: Inflation is still too high
Forex

RBA’s Bullock: Inflation is still too high

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Last updated: 2024/08/16 at 1:22 AM
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The Reserve Bank of Australia Governor, Michele Bullock, recently emphasized the central bank’s focus on potential upside risks to inflation and indicated that there are no plans to cut rates in the near term. The board believes it has struck the right balance between reducing inflation and achieving full employment goals while striving to bring inflation back to target in a reasonable timeframe. Despite slow progress, there have been gains in the labor market, and the economic outlook remains uncertain. While goods price inflation has decreased, high service price inflation persists. Geopolitical issues could also impact global efforts against inflation.

Market reaction to Bullock’s comments saw the AUD/USD trading slightly higher at 0.6615. The Reserve Bank of Australia (RBA) plays a crucial role in setting interest rates and managing monetary policy in Australia, with a primary mandate to maintain price stability within an inflation rate of 2-3%. Decisions are made by a board of governors through regular meetings as well as emergency meetings when necessary. The RBA uses tools such as interest rate adjustments, quantitative easing, and tightening to achieve its objectives and stabilize the economy.

In modern times, higher inflation tends to lead central banks to raise interest rates, attracting capital inflows from global investors seeking profitable investments. This can strengthen the local currency, such as the Australian Dollar. Macroeconomic indicators, including GDP, PMIs, employment data, and consumer sentiment surveys, can impact the value of the AUD. A strong economy may prompt the RBA to raise interest rates, further supporting the Australian Dollar.

Quantitative Easing (QE) is deployed when interest rate adjustments are insufficient to stimulate credit flow in the economy. The RBA prints Australian Dollars to purchase assets like government or corporate bonds from financial institutions, injecting liquidity into the system. Conversely, Quantitative Tightening (QT) is implemented during an economic recovery and rising inflation to reduce the central bank’s asset holdings. QT can have a bullish effect on the Australian Dollar when implemented.

In summary, the Reserve Bank of Australia remains vigilant against potential upside risks to inflation and maintains a cautious outlook on rate cuts. The board is focused on balancing inflation reduction and full employment, while also considering the broader economic uncertainty and geopolitical challenges. Market reactions to RBA statements can influence the value of the Australian Dollar, with various tools like interest rate adjustments, QE, and QT employed to achieve economic stability. As the economic landscape evolves, the RBA continues to play a pivotal role in shaping Australia’s monetary policy to support growth and stability.

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News Room August 16, 2024
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