RBA's Stance on Inflation Expectations

SYDNEY (Reuters) – Australia’s central bank is not currently concerned about inflation expectations becoming de-anchored, according to Reserve Bank of Australia Assistant Governor Sarah Hunter.

In a speech at a Citi investment conference in Sydney, Hunter stated that recent research indicates households seem to have absorbed the latest inflation spike more effectively than expected, keeping inflation expectations stable.

The RBA emphasized that the connection between wage expectations and inflation expectations is relatively weak.

Hunter remarked, "So we’re not currently concerned that expectations could become de-anchored in the near term." However, she noted the importance of monitoring how these expectations evolve in the future for any signs of risk.

The RBA has maintained its cash rate steady at 4.35% since November, an increase from the record-low 0.1% during the pandemic. This rate is deemed sufficient to steer inflation towards the target range of 2%-3% while safeguarding employment gains.

Despite this, underlying inflation remains elevated at 3.9%, leading policymakers to anticipate that it won't drop to the midpoint target band by 2026. Market swaps indicate only a 40% chance that the RBA will opt for a rate cut in December.