RBA's Rate Rise Threat Looks More Like Bluff

The Reserve Bank of Australia (RBA) has been making noise about potentially raising interest rates to combat inflation, but its own forecasts suggest it may struggle to follow through with this threat.

RBA governor Michele Bullock has repeatedly warned that there are upside risks to inflation and that the bank may need to tighten monetary policy further. However, when examining the RBA's latest forecasts, it becomes clear that the bank is expecting lower inflation than previously thought, as well as higher unemployment and softer wages growth.

The RBA also sliced its household spending forecasts and cut its expectations for housing investment by a significant margin. In May, the bank expected new home construction to grow by 2%, but now it predicts a contraction of 0.7%.

This has led some analysts to question whether Bullock's warnings about rate rises are more than just jawboning, using her voice as a central banker to influence markets without actually implementing the necessary policy changes. The RBA got its last inflation forecast wrong, missing it by 1%, and also downgraded its unemployment and wage growth forecasts.