The Reserve Bank of Australia signals "patience": Downplays short-term data volatility and maintains a cautious stance on interest rates amidst high inflation.

Australia's Reserve Deputy Governor Andrew Hogg recently stated that the bank will focus on future trends in assessing inflation, rather than reacting to individual data, signaling that policy makers will maintain patience and caution in future interest rate adjustments. Hogg pointed out in an interview on Thursday that an inflation rate above 3% is still "too high," and decision makers will wait for the comprehensive quarterly inflation report to be released on January 28 to form a complete assessment of consumer prices. He also suggested that Australians may have already witnessed the last rate cut in the current easing cycle. "I know this is not the news that all viewers want to hear," Hogg admitted. The day before these remarks were made, official data showed that Australia's inflation slowed slightly in November, but overall and core inflation indicators remained above the central bank's target range of 2%-3%. Hogg stated that a series of monthly inflation data has been helpful, but the results are "broadly as expected." Following his remarks, traders reduced the probability of a rate hike by the central bank in May from fully priced in during the early trading session to 80%. Prices of three-year government bonds sensitive to policy changes rose, causing yields to fall. Pralanth Nuniha, a strategist at TD Securities in Singapore, interpreted it as: "The market believes that the Deputy Governor's remarks suggest that the Reserve Bank of Australia's position has not significantly changed, so the central bank may maintain rates unchanged for a longer period of time rather than needing to hike early." Since the last rate cut in August last year, the Reserve Bank of Australia has kept the benchmark rate at 3.60%, with its policy focus shifting to a new round of inflation pressures amid ongoing labor market tightness and weak productivity growth. The latest minutes of the monetary policy meeting showed that officials had discussed the conditions under which a rate hike might be necessary, but any action will depend on subsequent data. Officials acknowledged that the full effects of the 75 basis point easing policy implemented between February and August have not fully materialized. When asked what circumstances might prompt a rate hike, Hogg's response was somewhat humorous: "How direct can I be on TV?" He then explained, "We don't have rigid rules like 'if inflation is at 0.9%, we do nothing, if it's at 1%, we hike, if it's at 0.7%, we cut.' We consider the overall economic situation." In a high inflation environment, consumer attitudes remain cautious: real per capita spending remains stable, the savings rate has increased slightly, and households are still rebuilding financial buffers. At the same time, the Reserve Bank of Australia still considers the labor market to be tight, with a positive output gap, posing a challenging macroeconomic backdrop for monetary policy formulation in 2026.