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ANGE:

From Schwartz Media, I’m Ange McCormack. This is 7am.

For decades the RBA has done things the same old way: announcing their decision on interest rate changes on the first Tuesday of the month, at 2:30, with just a short statement.

This week, the bank’s first decision of the year was different. A candid press conference with the governor meant that the board’s decision was finally allowed to be questioned.

So, what did this new regime, which started in the name of transparency reveal?

Today, managing editor of The Saturday Paper, Emily Barrett, on the RBA’s fresh start, and whether it will make a difference to everyday Australians.

It’s Thursday, February 8.

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Audio excerpt – Michelle Bullock:

“Hi… Hahaha… Hahaha… Thank you all for coming and for your interest in the, in the board’s deliberations today in this first media conference.”

ANGE:

Emily, on Tuesday, the RBA governor, Michelle Bullock, held a press conference, which doesn't sound like a particularly big deal. But for journalists, especially finance journalists like yourself, this really was a big deal. Everyone was closely watching it. Can you explain why this press conference was so kind of exciting and important?

EMILY:

Yeah. So at the risk of sounding like a terrible nerd, this is pretty important. We used to get a decision on interest rates and what the central bank was planning for monetary policy pretty regularly. It was 11 times a year. And a very brief summary of the context.

This is the first time that we're moving into this new regime that was recommended by a review, an extensive review into the bank to improve the communications and to really hold these regular press conferences that are a little bit more of a chance for Michelle Bullock to talk directly to journalists and to the public about the thinking behind their decisions.

ANGE:

Let's talk about why the RBA needed to do things differently. Why is the central bank changing?

EMILY:

Well, there's a couple of reasons. I mean, transparency is important, but it also means more accountability from the central bank, which likely also helps it make good decisions if the governor has to stand up in front of a bunch of rapacious journalists, and defend the bank's decision as healthy for the quality of the debate.

The central bank has come into criticism for the depth and expense of thinking behind these decisions. We can talk about the changes to the board's meetings, where they're also supposed to help strengthen the, the focus of, of the members. There'll be eight now instead of 11 each year. And they'll stretch over two days, which means they just have more time to deliberate.

So the theory from the review, which was commissioned by Jim Chalmers when he became the Treasurer, is that if you have more experienced people sitting on the board, but also more time to talk and reflect, it will allow different sorts of theories and different sorts of perspectives to be aired.

And one thing that the central bank has suffered from, particularly the RBA has suffered from, is a kind of a culture problem. This has been reported by a lot of the people I spoke to for this story, is that there was very much a kind of siloed approach, that it was difficult to get the views from researchers and from all of the studies that have been, you know, were being conducted by very capable economists within the bank to actually be disseminated to everyone who was thinking about setting, you know, monetary policy.

And without that kind of free flow of information and ideas, it really becomes very difficult to get all of the perspectives and the diversity of views that you need.

It's a double edged sword for the governor, because while it helps spread around the credit and the blame, most likely for decisions and follow clearly chafed at being singled out for the decisions that he made with the board.

It also means that the governor has to find a way to synthesise those views and bridge those gaps. So it's a big job for, for Michelle Bullock to be undertaking, which hasn't really been done by former central bankers in this country.

ANGE:

And this new era of the RBA with its, you know, press conferences and greater transparency at the heart of it, how does that compare to how other countries' central banks operate? You know, as someone who's been a finance reporter all over the world, how overdue is this change here in Australia?

EMILY:

Well, it's interesting because basically the point of the reviews was to move Australia more in line with practices. I mean, this is very close. What we now have and what the Fed does. The Federal Reserve in the US, that has eight meetings a year.

The ECB has tons. This is the European Central Bank has tons of meetings here. They meet twice a month. They're really excited about meetings. But they give press conferences pretty much each month. So it's very similar. Now what Australia is doing to what has existed for a long time overseas.

So this shift sounds like it's really just a set of, set of scheduling and that kind of thing. But really the language and the course of a press conference can be incredibly hard work for the person standing up there.

And it's just fraught with all kinds of pitfalls. If you say the wrong thing. You can, you know, you can actually watch in real time the stock market drop. And that's not a reassuring thing for any central bank.

And that has certainly happened before. There's Wim Duisenberg, who was the head of the ECB in 2003, was called Dim Vim, because of his habit of just saying whatever came into his head apparently, you know, occasionally that did see markets just fling themselves around in horror.

There's definitely that risk for Michelle Bullock to try and temper her tone and make sure that she doesn't end up sparking any kinds of problems throughout financial markets.

ANGE:

After the break - how Michelle Bullock handled the spotlight.

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ANGE:

Emily,we're talking about the RBA's new transparency era, and the first big moment of its overhaul happened on Tuesday with a press conference from Michelle Bullock. Finance reporters, you know, used to get rates decisions every month without much context and no questions allowed.

And now they actually had the chance to ask the governor why the board made the decision that it did. What did Michelle Bullock reveal about the board's decision that we otherwise wouldn't have known normally?

EMILY:

She was very ingratiating. She was smiling. She was joking with journalists, these are all good things. She needs essentially to build a rapport with that room. Because ultimately they're translating the messages from the central bank, and they need to be able to understand her.

She was able to look like she was relaxing a little bit. She talked about Taylor Swift and the need for her kids to actually earn the money to, to go and get the tickets. You know, she joked. She laughed.

Audio excerpt – Journalist:

“And how does the interest rate rises affect services, inflation, the insurance legal fees or Taylor Swift tickets?”

Audio excerpt – Michelle Bullock:

“Yes, I know all about Taylor Swift, inflation as well myself.”

EMILY:

So just to quickly backtrack for a second, this was a pretty important meeting for another reason. And that's because we're near what, what is called an inflection point. We hope that after 30 interest rate rises, we might be able to see cuts coming. So this is where the bank changes its stance effectively. And it sort of seems to affirm that it's still in a tightening stance. So it's still inclined potentially to raise interest rates to make sure that inflation comes down.

But we're at this point where they will shift. Right. So she wasn't giving much away there. And nobody changed their views and openly spoke to change their forecasts on the basis of what she said. But the really interesting thing was the way some journalists were trying to pin her down.

Audio excerpt – Journalist:

“Hi Governor, Stella Chow from Reuters. We just have a question about. So on a scale of 1 to 10, how confidently are you currently about inflation is moving sustainably back to a target range? And what would make you more confident?”

Audio excerpt – Michelle Bullock:

“So 1 to 10, on how confident am I…”

Audio excerpt – Journalist:

“about inflation moving sustainably back to target.”

Audio excerpt – Michelle Bullock:

“In the band. Well, if you looked at our forecasts, I guess, and thought that's our central cast, forecast .5, or 5 sorry, 5, 1 to 10.”

Audio excerpt – Journalist:

“Is it the case that people are sharply underestimating the prospect that the next move in interest rates will be up?”

Audio excerpt – Michelle Bullock:

“I think, hmm, James, the, we we judge things, the risk actually, at the moment is fairly balanced. So I'll come back to my previous point that we're not ruling in or out interest rate changes. We are not, we are, the board decided today to stay on hold given all the evidences that we had.”

EMILY:

The other thing that I thought was really interesting about it was, there was an attempt obviously, among all journalists, there's the desire for the headline, and there were certainly questions about stage three.

Audio excerpt – Journalist:

“So the question is, you know, given the beneficiaries of the tax cuts or the bigger tax cuts will be lower middle income earners, and they tend to spend more of their, these bigger tax cuts. How much will that add to demand to spending and inflation?”

EMILY:

And she pretty much shut down the idea that the revisions to stage three would change anything about their forecasts for inflation.

Audio excerpt – Michelle Bullock:

“The very short answer to that is, I don't think it's a material issue. If you look at Treasury's analysis.”

EMILY:

She was pretty succinct about this. She was saying that simply because you're giving money to lower income earners, that doesn't necessarily mean a rise in inflation. She didn't sort of spell it out like that, but she did say the fiscal envelope is the same.

Audio excerpt – Michelle Bullock:

“It's the same amount of money being handed to households is distributed slightly differently, but we don't think it has any implications for our forecast.”

EMILY:

The other thing that was really, I thought different about her speech, probably from the point of view of how much emphasis she put on it, was that she wasn't just treating this as an academic exercise, obviously, in terms of rates, she pointed out that mortgage holders are sweating on this, that she really understood.

But it wasn't just about mortgage holders, it was also about renters and about the cost of living and how inflation rising the way it has and being so far above their target has really hurt everybody.

Audio excerpt – Michelle Bullock:

“You know, grocery prices increased by 20% over the last two years. That's massive. And that's really hurting people, particularly people on low incomes. That’s why…”

EMILY:

And she really did see when she was talking about, you know, the costs to mental health and how she talks to people at ACOSS and Beyond Blue, etc., that she was really keen to acknowledge. She reads the letters that people write into her. And things about, you know, the effects on real people of what she's having to do every day.

ANGE:

And Michelle Bullock was also asked what keeps her up at night, which was an interesting question. Did she give any indication as to what the RBA might really be worried about?

EMILY:

She was clearly still worried. And this is where I think there was a bit of nuance in a slightly more hawkish tone sounding still possibly a little bit keen on raising interest rates again. Her biggest concern to her mind was that inflation didn't come down fast enough.

Audio excerpt – Michelle Bullock:

“Look, what worries me, I think most is that we don't manage to bring inflation back down to target without collateral damage, if you like, with more damage in the labour market than we can avoid.”

EMILY:

It's not just about bringing inflation back to a target. It's about, does the central bank lose its credibility? And ultimately, does she lose her credibility by trying an aggressive tactic in raising interest rates 13 times and then stopping and then finding that it hasn't solved the problem? So for her, that's a huge risk. And for the central bank more broadly obviously.

ANGE:

And, Emily, this public press conference is a big change we're going to be getting used to from now on. It's something we're going to start to notice every six weeks, this press conference on our screens.

But it's only one part of some broader changes happening at the bank. How significant is the transformation happening at the RBA right now, and what is it going to actually mean for all of us?

EMILY:

How it affects us basically boils down to what we were talking about before. In terms of better decision making. There's going to be a split. I mean, this is a little bit wonky, but there's going to be a split between what was typically handled by the board into two separate entities, one of which will concentrate on monetary policy, which quite frankly, is a big enough job in and of itself. And the other which will concentrate on sort of governance and the running of the bank and how it's managed.

So the challenge ahead for Michelle Bullock, which is something that no central banker has had to face, you know, I mean, it's been, it's been a generation basically since anything about the RBA's function was changed. So this is a huge, this is a huge transition.

Michelle Bullock has clearly got the competence and the skill set to be able to manage this, as I've heard from multiple sources. But it's really, it's about reshaping this central bank for a new generation, a new function. There are huge challenges coming our way. Things that the central bank hasn't even begun to get its arms around in any formal way.

Things like climate change, things like helping to heal inequality, helping to address these things that for so long have been considered not the job of central bankers. And as we have more disaster, natural disasters and man made disasters. These are all the kinds of things that are going to become more and more the remit of any financial authority, and this bank needs to be ready to take on the kinds of challenges that will be faced in the future.

And, you know, there's going to be a recession again at some point. How well equipped the bank is to handle that in terms of its processes and the quality of its decision making. It's crucial, and this is a really good start.

ANGE:

Emily, thanks so much for your time today.

EMILY:

Thanks a lot.

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ANGE:

Also in the news today,

Australian governments are failing to close the gap and improve Indigenous outcomes, according to a scathing Productivity Commission report.

The report’s authors said there has been “weak” action on key targets and a “disregard” for advice from Indigenous communities.

And

Former ACCC Chair Allan Fels has released the findings of his inquiry into price gouging in a speech made to the national press club - saying that Australians are being overcharged by banks, energy companies, airlines and supermarkets.

The report, which was sponsored by the ACTU, lists 35 recommendations that will now be handed down to the Albanese government.

I’m Ange McCormack This is 7am. Thanks for listening to us.

And if you’re keen to listen to another great podcast, our sister show, Read This, is back today for 2024! In today’s episode, Michael Williams talks with Pulitzer Prize-winning author Geraldine Brooks about how her upbringing provided the perfect building blocks for a career as a writer. Find Read This wherever you get your podcasts.

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