SYDNEY: The response of interest rate traders to Australia’s recent economic data suggests the Reserve Bank of Australia’s (RBA) policy reaction function is being understood, says deputy governor Andrew Hauser.

Hauser was speaking here after rates traders pushed back the expected timing of the first RBA cut to April from February, following strong employment data last Thursday. They had previously been pricing a decent chance of an easing late this year.

“I’m not making a comment about whether the absolute level of the curve is priced in the right place or not,” Hauser said at a Commonwealth Bank of Australia conference.

“That’s for everyone in this room to make a judgment on but the response of rates to the data does seem to be quite encouraging.”

While the RBA raised interest rates to a 12-year high of 4.35%, it has moved more cautiously than many international counterparts.

That’s sparked questions over whether it has done enough to cool demand.

Hauser said the central bank’s message is that policy is ready to respond in either direction, leaving the door open to a possible late-cycle hike.

Underpinning economy-wide demand, data out last week showed the nation’s powerful stretch of hiring extended into September with unemployment holding steady at 4.1%.

Australia’s labour market has outshone other developed world peers where tighter monetary policy has pushed jobless rates much higher.

Hauser reiterated that the RBA’s strategy is to bring consumer price index down slowly to protect the labour market, adding inflation in Australia is still “too high.”

As a result, he said, RBA rates won’t fall as much or as early as those of other central banks.

Economists generally expect the RBA to be a laggard in the global easing cycle, predicting the central bank will start on an easing cycle in February.

Last week’s jobs data, along with third-quarter inflation due later this month, will be important inputs for the RBA’s November policy meeting, where it’s expected to leave rates unchanged yet again.

“We are data dependent but we’re not data obsessed. We have to take that number in the context of everything else,” Hauser said, referring to the employment release last week.

“Activity has been weak, very weak and we haven’t seen the inflation number for the third quarter yet.”

Some economists, including those at the nation’s top lender CBA, expect policymakers to pivot to a more dovish tone next month. Others such as Royal Bank of Canada and Citigroup Inc expect the RBA to continue signalling that rates are on hold until it’s confident that inflation is moving sustainably toward its 2% to 3% target.

Data since the RBA’s last board meeting has been mostly upbeat – consumer sentiment lifted to a 2½-year high and business confidence rose.

Australian retail sales climbed by more than expected in August helped by tax cuts and warmer weather. 

\- Bloomberg