• The interest rate increase will help contain inflationary shock
• If second round effects feed through to expectations, then it could require even higher rates
• The cash rate level is now a bit restrictive
• That gives us space to see how the conflict plays out

Q&A session:

• “Wait and watch” is probably the wrong term to describe current stance
• We feel we are now in a position where we’ve got space to be alert to both sides of the risks to inflation outlook
• The war has delivered a shock to income, “it has made us all feel poorer”
• Baseline scenario outlines that growth will be anaemic but economy will still grow
• Quite possible we didn’t have to raise cash rate again if the war didn’t occur, but reality is that it did
• The war has made the tradeoff much, much worse; we have to be cognizant of its impact on inflation expectations
• Reasonable for businesses passing on costs to consumers
• We want to guard against inflation pressures being embedded into the economy
• Even if the conflict is resolved quickly, the costs will mount all throughout the year
• With this rate hike, we have space to sit and see what happens

The aussie is down slightly here as Bullock is brushing aside the prospect of taking another step too quickly. She is still painting a more optimistic picture on the economy and reaffirms that rates are now in a restrictive space to try and tackle inflation pressures that have been and are looking to filter in through the war.

Although she categorically says that “wait and watch” is not the right term to describe their existing stance, it certainly does look like it. And the point of her denial is purely for the optics. It just sounds bad to say that when households look set to struggle in the months ahead amid higher prices.

AUD/USD is down 0.3% to 0.7140 with the next 25 bps rate hike now pushed to November. It was previously priced in for September instead. By year-end, there’s ~30 bps of rate hikes priced in now. That’s mildly lower than what we saw before the RBA rate decision earlier in the day.