RBA Putting Time, Attention Into Gauging China Stimulus Impact

RBA Putting Time, Attention Into Gauging China Stimulus Impact·Bloomberg
Swati Pandey and Haidi Lun
3-min read
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(Bloomberg) -- Australia’s central bank is still running through the local implications of China’s stimulus measures as officials prepare the Reserve Bank’s latest update of forecasts for next month’s board meeting, Assistant Governor Sarah Hunter said.

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“It’s obviously very recent news,” Hunter said in an interview with Bloomberg Television in Sydney on Wednesday. “We are factoring it into our forecasts going into November and we do pay, as you might expect, a lot of attention to China given how important it is to the economy here.”

She said the RBA is assessing the implications for domestic growth given China is Australia’s largest trading partner, particularly when it comes to the outlook for 2025. Hunter, in her role as RBA assistant governor, oversees economic forecasting and is the chief economic adviser to Governor Michele Bullock.

Officials in Beijing have signaled a desire to draw a line under China’s growth slowdown, unleashing a series of stimulus measures from monetary to regulatory easing since late September. A rare Politburo meeting last month that focused on the economy also made its first pledge to stop the property market from “declining.”

Australia “still has very strong linkages” with China, Hunter said, answering a question on Canberra’s efforts to diversify its trade relationships. “China’s still very important and we put a lot of our time and attention into thinking through what’s happening there and what it means for the economy here.”

Inflation Expectations

Earlier, in a speech to a Citigroup Inc. conference in Sydney, Hunter said the central bank is on constant alert for signs that inflation expectations may become unmoored in the current episode of elevated and sticky prices, though it’s confident they’re contained in the near-term.

“The fact that expectations feed into actual inflation outcomes means de-anchored expectations typically leads to greater inflation volatility,” Hunter said. “Given the enormous damage that such de-anchoring can cause, and that policy can be enacted more flexibly while expectations remain anchored, the RBA board is constantly alert for signs that this risk might emerge here in Australia.”

So far, Hunter concluded, expectations remain well within the RBA’s 2-3% target. She pointed to some evidence that households and labor unions are actually taking less of a signal from the recent elevated price pressures.

“It’s important that we track how they’re evolving and that we understand how expectations are formed, so we can monitor whether there are any signs of this risk materializing in the future,” said Hunter, who oversees economic forecasting in her role as assistant governor.

Hunter’s comments come as the RBA has said it will hold interest rates at the current 12-year high of 4.35% until it’s confident inflation is moving sustainably back to target. That contrasts with most of the developed world which has already embarked on an easing cycle. Last month, Federal Reserve Chair Jerome Powell led his colleagues in an outsized rate cut designed to preserve the strength of the US economy.

Financial market pricing implies the RBA’s next move is down, with a cut seen early next year. A Bloomberg News survey showed that a majority of economists expect the RBA will keep the cash rate steady this year.

(Retops with China comments from Bloomberg TV interview.)

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