The Fed cut by 50 basis points. Would the RBA consider doing the same?

While its peers have already started cutting interest rates from cycle highs, the Reserve Bank of Australia noticeably stands out as the central bank at the back of the pack. Having raised rates to a level lower than its peers, it's now keeping rates at restrictive levels for longer as well.

This conscious decision to hold rates at a relatively higher level has had a significant impact on our markets - especially the Australian Dollar which currently sits at a near-12-month high and long bond yields which are higher in Australia than they are stateside.

But is this what the RBA wants? And given the Fed's first move was a 50-basis point cut, is it reasonable to assume that the RBA is also thinking about cutting rates by 50 basis points at some point this cycle?

To find out, we put these questions to the Governor of the Reserve Bank, Michele Bullock, in the latest of our ongoing coverage of the RBA post-meeting press conferences.

The RBA statement - in very brief

There were few meaningful changes to the statement from six weeks ago. But one such change spelled out the effect of higher rates on the economy in plain English:

"Taken together, the latest data do not change the Board’s assessment at the August meeting that policy is currently restrictive and working broadly as anticipated."

In addition, there was barely any reference made to the rate cuts made by international central banks. The Bank is acutely aware that headline inflation may fall temporarily but they are very concerned that the trimmed mean measure has been sitting above the 3% target for 11 consecutive quarters. Australia is, in real terms, running its own race:

"Some central banks have eased policy, although they note that they are removing only some restrictiveness and remain alert to risks on both sides, namely weaker labour markets and stronger inflation."

Is there a scenario where the RBA could cut by 50 basis points?

"That sounds awfully like a cry for forward guidance from me. We are not thinking about actual numbers of how we might cut," says Bullock.

"We are looking at the data, and we're not ruling out we might raise, we're not ruling out we might cut. We think we're in the right spot at the moment."

"When the time comes, then we'll have a discussion about how urgent in one direction or the other is it that we move, and how big those moves will be. So I wouldn't like to speculate right now about the size of any moves."

Other highlights of the Q&A

Was there any discussion about cutting rates: "We didn't explicitly consider an interest rate rise at this meeting. The format of the meeting was slightly different. The way we framed the discussion really was around what had changed since August and what would we need to see to go either a raise in interest rates or a lowering in interest rates."

The Australian dollar is near a one-year high, would you encourage it to rise further as a way to ease inflation: "No, I wouldn't be encouraging", adding, "It is ultimately the trade-weighted index that matters more here than the US Dollar."

Why are rates coming down in other economies (US, Canada, New Zealand and China): "Economic circumstances here are a little different than they are overseas. So some of the countries you cited, New Zealand, Canada for example, are seeing quite sharp rises in their unemployment rates ... we look at how restrictive some of those countries are relative to us. We are restrictive, but we think they are more restrictive than us."