RBA can see a way to avoid recession

THE Reserve Bank of Australia deputy governor Michele Bullock says there is still a path for Australia to avoid going into recession.

“We still feel that there is a path for us here where we can get inflation down, not go into recession, preserve most of the gains in employment that we’ve had,” Ms Bullock said at the Australian Finance Industry Association (AFIA) annual conference in Sydney on Tuesday morning.

Earlier this month, the RBA made the shock decision to ease interest rate hikes by applying a moderate 25 basis point rise rather than the 50 basis points predicted by markets.

It was the first time the bank had offered some relief to consumers after four consecutive 0.5 percentage point hikes in the past 12 months had wreaked havoc on mortgage repayments.

“Inflation is too high at the moment,” Ms Bullock said.

She said the decision to increase rates by just 25 basis points was one that took into consideration the four consecutive increases of 0.5 percentage points already made since May.

The RBA released minutes from the October meeting of its Board ahead of the moderate interest rate rise.

When considering an increase to interest rates, the Board reflected on whether the community would question its resolve to reduce inflation.

“This might in turn prompt an unhelpful reaction in inflation expectations and financial markets, if the community came to question the Board’s resolve to reduce inflation,” the RBA said.

It also noted the risk that household spending might increase despite the likelihood that interest rates would increase again in the near future.

Ms Bullock revealed the RBA was uniquely positioned compared with its overseas peers because the board met 11 times a year.

The RBA board suggested in its minutes that slowly adjusting interest rates would allow it to “assess the effects of the significant increases in interest rates” and “the evolving economic outlook”.