RBA Rate Cut and Market Responses Update

These are big, awkward questions.

Does the Reserve Bank want a larger pool of unemployed people, to reduce pressure on wage growth and business costs?

Essentially, do more people need to lose their jobs before inflation can fall further and interest rates can be cut again?

Independent MP Allegra Spender asked RBA governor Michele Bullock about the new wage growth and jobs data, which came out after the board’s recent decision.

“Labour data is the main area we’re looking at,” Ms Bullock said.

“Some very loud voices actually argue that there is nothing inconsistent with this labor market and bringing, and continuing to bring, inflation back down.”

“We remain a little bit more cautious.”

“This is a good thing!” she said, pausing to emphasise the point with two hands.

“It’s a good thing that people can get jobs. The question is, is it a little top tight… to continue to bring inflation back down to the target and sustain it there?”

“…We think it’s a little bit too tight.”

So yes, the RBA does think unemployment is too low.

NAIRU, Not the Country

In economic theory, NAIRU is the ‘non-accelerating inflation rate of unemployment’.

It’s the theoretical level of unemployment that’s supposedly “natural” for prevailing conditions.

It can change over time, as the structure of the economy changes, but if unemployment ever falls too far below it, it will see wages and inflation begin to grow too quickly.

Asked about the NAIRU, Ms Bullock says it’s not the be-all and end-all.

“But they’re not our forecast, we use judgement, it’s more subtle than that.. there are a range of indicators that we look at…. It’s not a focus on NAIRU as such, it’s a focus on all these indicators, including growth of wages and inflation…

“I want to make it absolutely clear up front, a lot of people talk about the NAIRU but it’s not the be-all and end-all and not something the board focuses excessively.”

Is there any commentary around Austal?

– Andy Smith

Ask and you shall receive Andy (subject to blog staffing levels).

Shares in shipbuilder Austal have rallied to a five-year high today, currently up around 14 per cent.

Its half-year profit more than doubled to $25.1 million, while revenue and earnings were also up.

Austal said two infrastructure contracts it had been awarded, totaling $US600 million, had strengthened its cash position.

The company was also upbeat on the outlook, saying its order book was at a record and it was “well positioned” to take up further project opportunities in the US and Australia.

Three hours later, the RBA’s time in front of the House of Reps economics committee hearing has come to an end.

There was a lot of ground covered towards the end there, specifically around payment systems and cash transportation.

Both those topics require a bit of context to understand fully — so even though the hearing has wrapped up, we’ll bring you those key moments shortly.

(And of course, if there’s anything you’re curious about from the hearing, drop us a comment and we’ll do our best to answer this afternoon.)

Talk about an unexpected headline—we’ve pivoted away from interest rates towards payment systems, and Labor MP Jerome Laxale has been asking about cryptocurrency and the RBA’s views on it.

Laxale asks Bullock what she meant by past statements that she “didn’t understand” Bitcoin and didn’t see a role for it in the economy.

“I don’t understand why people think that somehow Bitcoin is going to have this increasingly important role in the payment system,” she says.

“It doesn’t have a solid value. You can’t be guaranteed that what it’s worth today, it will be worth the same thing tomorrow. It’s extremely slow relative to other payment systems. You can get transactions through in milliseconds on other payment systems.”

“So I just don’t see that it’s got the infrastructure to be a payment system … I personally don’t think that it’s going to play a role in when you go to your local pizza shop or go buy your groceries. I just don’t see it.”

Laxale then asks if Bullock considers Bitcoin as being different from other meme coins such as the “Libra coin” or the “Hawk Tuah coin”.

“We are doing work on a separate issue, which is the potential case for central bank digital currencies,” she says.

“The RBA, I don’t think, as an organisation, has an opinion on what we should be doing with Bitcoin, or what we should be doing with these meme coins and so on.”

“Some people are finding something interesting to do with them, but they’re not core to the payment system.”

“They’re not something that we regulate, and I don’t think we have a particular view.”

“If people want to transact in these things, that’s fine. It’s just that I don’t see it as a core part of the payment system.“