Reserve Bank rate hike to 4.35pc about inflation and reasserting RBA’s independence

Despite Treasurer Jim Chalmers’ protestations, this rate hike had to happen for Reserve Bank governor Michele Bullock to assert her own independence, as well as the institution’s.

Consider the optics: Bullock, a Chalmers appointee, is new in the role and still without a deputy — Chalmers has promised one will be in place for the next RBA meeting in December. Two long-serving RBA board members have recently finished their terms, with two Chalmers appointees recently taking over.

Comments from Treasury secretary Steven Kennedy about the inflation and economic outlook were read as him not supporting another rate hike, while Chalmers himself said the latest inflation figures were not a “material” change to the inflation outlook.

Economists had already noted in the lead-up to Tuesday’s decision that, as CBA’s Gareth Aird said, “the RBA’s sway on the board is slightly lessened at the moment”.

If Bullock had announced a pause, not only would there have had to have been a compelling reason owing to the stronger than expected inflation data, but it would have further fuelled speculation about whether Chalmers had forced it to do so.

Chalmers — who on Tuesday said the RBA was “independent” seven times in a press conference that lasted barely nine minutes — rejected the idea he had backed the RBA into a corner. It’s the second time in three days he’s done so.

There’s no suggestion the RBA was tempted to keep rates on hold to appease Chalmers and the Government but the speculation is unhelpful and Chalmers would do well to truly respect the RBA’s independence by being more cautious in his language.

The hike has “reinforced the inflating fighting credentials and independence of the RBA under new Governor Michele Bullock” said AMP chief economist Shane Oliver.

Betashares chief economist David Bassanese was more emphatic.

“The Federal Treasurer’s public interventions to downplay the need for higher interest rates ... likely only hardened the RBA’s resolve — indeed, for the sake of being seen to be independent, it was even more important for the bank to raise interest rates today,” he said.

Rate hikes are unpleasant enough without the kind of sideshow we’ve experienced over the past fortnight.

If, as some expect, another is needed in either December or February to shore up the RBA’s efforts to get inflation back to target by late 2025, let’s hope politicians can avoid unnecessarily complicating the issue.