RBA governor emphasizes inflation and employment priorities, clarifying no commitments on interest rate actions

    by VT Markets
    /
    Aug 12, 2025
    The Governor of the Reserve Bank of Australia (RBA), Bullock, highlighted that the RBA is mainly focused on inflation and employment. They are not looking to influence asset prices. Bullock stated that there will be no promises about changing interest rates due to fluctuations in the financial markets. She also pointed out that there could be risks of market instability, especially if there are problems in the US.

    Central Bank Intervention

    Central banks are often expected to act during times of financial stress, but Bullock clarified that intervention is not guaranteed. This suggests that central banks might not directly support financial assets. The RBA has made it clear that they will not step in to support asset prices, even during market volatility. It’s important to recognize that the “RBA put,” or safety net for investors, is currently not available. Their focus is strictly on domestic inflation and employment, not on the ASX 200 index. This approach is backed by recent data from the June quarter of 2025, showing that inflation is steady at 3.2%, which is just above the RBA’s target. The unemployment rate remains low at 4.0% as of July 2025, giving the RBA no reason to ease their policies. These figures allow them to maintain current interest rates.

    Market Volatility and Risks

    We should expect more market volatility since the central bank has taken away some market support. The Australian VIX index has been around a calm 14, which seems to underestimate the risks pointed out by the RBA. This indicates that it might be wise to consider hedging strategies, like buying puts on the index or other related options. The mention of risks from the US is an important warning. In the fourth quarter of 2018, tightening measures by the Fed led to a major global stock sell-off. The RBA is signaling that they won’t automatically lower rates to soften such an event. Therefore, we need to closely watch US inflation data and Federal Reserve comments for any unexpected hawkish moves. For currency traders, the outlook for the AUD/USD is complicated. A hawkish RBA usually helps the Aussie dollar, but if risk aversion arises in the US, the US dollar could strengthen sharply. This conflict may cause significant swings in the currency pair, suggesting that options strategies like straddles might be better than outright directional bets. Create your live VT Markets account and start trading now.

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