RBA Governor Bullock: The effects of monetary tightening take time to filter through the economy, meaning the impact of recent rate hikes has yet to fully materialise.

The Reserve Bank of Australia Governor, Michele Bullock, stated that the effects of monetary tightening take time to filter through the economy and that the impact of recent rate hikes has yet to fully materialise. The core transmission mechanism here is the lag between policy rate changes and their effect on household cash flows, mortgage servicing costs, business investment, and ultimately consumer demand and inflation. Because much of Australia's mortgage market is floating-rate, the pass-through to borrowers is relatively quick, but the drag on spending and labour demand builds with a lag, meaning the restrictive stance may still be biting in ways not yet visible in headline data. Rate-sensitive domestic assets, including the Australian dollar, Australian government bond yields, and bank and property-linked equities, are most exposed to any repricing of the policy path, since traders will reassess whether further tightening is needed or whether the cumulative hikes are already sufficient. The next catalyst for traders to watch is the quarterly Consumer Price Index release, which will indicate whether inflation is moderating in line with the lagged effects Bullock described.

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