Bullock’s steady hand welcome, but global data drives rates outlook

Corporate Australia welcomed Michele Bullock’s appointment as the next Reserve Bank governor on Friday, but investors were more focused on global economic data as they sought to predict the central bank’s path on interest rates.

Investment banks and business groups backed Bullock’s appointment to the top job as a win for stability and continuity as the RBA continues to fight a war on inflation.

“Bullock has been at the RBA since 1985 and the appointment provides continuity for the RBA and for the current approach to monetary policy,” HSBC’s chief economist of Australia, New Zealand and global commodities, Paul Bloxham, wrote in a note to clients.

Market watchers said there was little evidence at this stage that Bullock’s perspective would differ widely from that of outgoing governor Dr Philip Lowe.

Citi’s analysts said federal Treasurer Jim Chalmers had avoided a “messy succession” by choosing Bullock, while Barclays’ team said it expected policy continuity under her leadership.

Financial market forecasts for the path of interest rates have changed significantly over the past week, with markets now predicting just one more rate rise to bring the current 4.1 per cent cash rate to a peak of 4.4 per cent.

This shift in expectations had little to do with the leadership of the Reserve Bank, though. It has instead been driven by softer than expected inflation data in the United States, as well as comments from outgoing RBA governor Lowe this week that appeared to talk down the need for further rate rises.

The head of investment strategy, multi-assets at Perpetual, Matthew Sherwood, said the change in leadership at the RBA was unlikely to affect how the board approached decision-making on rate rises.

“It is going to be the same board, looking at the same data,” he said. “I think if there is going to be changes to the interest rate path, it is going to be driven by the data, not a new head of the RBA.”