Open mouth operations
The RBA does not want to promise what it will do, but it is increasingly trying to tell us what it thinks.
- Central banks’ communication is carefully scrutinised for every nuance. Lately, there seems to have been more RBA communication to pore over. The method of delivery has also evolved. This has sometimes caused confusion when tone seems to vary. Different audiences call for different tone and varying complexity.
- The content has evolved, too. RBA officials are increasingly using speeches directed to professional audiences to discuss more technical estimates of inferred variables such as neutral rates and financial conditions. They are also highlighting that monetary policy combats inflation in more ways than just squeezing mortgage holders.
- One thing has not changed: the RBA is not in the business of providing ‘forward guidance’ promises about the future path of interest rates. It does, however, give more running commentary about how it is interpreting recent data. These interpretations are themselves useful signals about what the RBA thinks it might do.
Market participants pore over every utterance by central banks for clues to future rate moves. They will have plenty to pore over in the run-up to the November RBA decision. After the flurry of fireside chats this week, ’60 Minutes’ will run a pre-recorded interview with chief economist Sarah Hunter on Sunday. Next Wednesday, the whole senior policy team will appear before Senate Estimates, just as the quarterly CPI is released. (This timing will have been the Senate’s choice, not the RBA’s.) After the decision will come the Statement on Monetary Policy, a media release and press conference. More speeches will follow, including one by the Deputy Governor on the Thursday.
RBA communication does seem to have changed, not just following the RBA Review but also more recently. There may be fewer policy meetings each year, but the communication outside that certainly feels more frequent than a couple of years ago. Back in 2024, speaking engagements felt a little sparse outside the post-meeting media conference and parliamentary appearances. We have counted 58 public engagements so far this year on the Speeches page on the RBA’s website. This compares with 58 for the whole of last year and 52 in 2024. Excluding the ‘compulsory’ press conferences and parliamentary appearances, fewer than half of the 2024 events were related to economics, markets and monetary policy.
The ‘how’ has changed
The way the RBA communicates with markets has changed as well. There are fewer set-piece speeches on policy and a lot more semi-scripted ‘fireside chats’. Compared with a few years ago, there are more interviews across a wide range of media. This is a big change from the pre-Review world. It was a huge deal when the previous Governor appeared on the 7:30 Report; it is hard to imagine him agreeing to an Assistant Governor appearing on 60 Minutes.
Part of the change reflects increased efforts to reach a general audience. Central banks want to explain why they do what they do. This matters especially when interest rates are rising but the household sector is not the source of the inflation.
Speaking differently to different audiences can sometimes confuse markets. As the RBA’s Chief Communication Officer highlighted in a recent panel discussion, the post-meeting media conference is designed to speak to the public. Market participants and economists certainly tune in, but we are not the primary audience. So if you think that what the Governor said in the media conference sounded more ‘dovish’ than what another official says in a more market-oriented forum, it is partly because she is trying to convey that the RBA understands that its recent policy actions are making things harder for many Australians. But this is in much the same way that a doctor might say, “This might hurt a bit.” It does, but that will not stop the treatment.
A related issue is that it is easier to control tone in pre-drafted material such as the minutes and set-piece speeches than in unstructured Q&A. Senior central bankers are trained to be careful with their words in unscripted settings. If the tone differs, the minutes are still more likely to say what the Board really means than an off-the-cuff answer.
Greater communication with the broader public might have reduced the pressure to make the set-piece speeches more accessible. Research on central bank communication often uses measures such as the Flesch–Kincaid Grade Level and Flesch Reading Ease score. A comprehensive analysis was beyond the scope of this note. However, a spot comparison suggests four speeches from 2026 (1, 2, 3, 4) were harder to read than four from 2021 (1, 2, 3, 4). The 2021 speeches scored in the 11 to 12 range, which is high-school-level complexity. The 2026 speeches scored between 12 and 15, which is academic or technically dense text requiring university-level education. (Including two of my own 2021 speeches is an obvious caveat, but the two speeches by then-Governor Phil Lowe also scored better on these metrics than the sample from this year. It should be noted, though, that readability metrics do not necessarily imply better clarity if the concepts discussed are more abstract.)
The ‘what’ has changed
As noted above, the content of RBA communication has evolved, too. As its intellectual framework has begun to put more weight on the balance of supply and demand, and those invisible ‘star’ variables (NAIRUs, neutral real rates, ‘financial conditions’, etc.), the communication to professional audiences has increasingly focused on those topics.
More recently, the RBA has also placed more emphasis on the full range of transmission channels from interest rates to inflation (though not, as we have noted previously, the labour supply channel). This is understandable in a world of supply shocks. People need to understand that monetary policy is not simply an exercise in hitting mortgage borrowers. We doubt they would be comforted, though, by the Deputy Governor’s explanation this week that the ‘cashflow channel’ was the smallest of the transmission channels from interest rates to inflation, with the exchange rate much more prominent. That implies a lot of pain for a small group, for little effect on inflation. It raises the question of whether other policy tools or institutional arrangements might get the same effect on inflation through the other channels without hitting a minority of households disproportionately.
We have also seen a move away from using catchphrases to summarise the position. From ‘narrow path’ to ‘not ruling anything in or out’ to ‘cautious and predictable’, once entrenched, a phrase can outlast its usefulness.
One thing that has not changed is the way the minutes record the presentations to the Board and the members’ discussion. The minutes rarely convey much new information beyond the post-meeting statements. Sometimes, though, the minutes reveal the Board’s reaction to the staff’s analysis. The August 2024 minutes were a good example: the discussion highlighted just how sensitive the forecasts were to key judgements by the staff.
The ‘why’ has not changed
Despite these changes, the underlying objectives of the RBA’s communication have not changed. It wants to explain – and perhaps justify – its decisions. And it wants to describe how it interprets incoming data, especially inflation, the labour market and the balance of supply and demand.
The RBA, like any central bank, is not really in the business of providing ‘forward guidance’ about future moves. Circumstances change, so it can never guarantee a particular future path for interest rates. Some academic literature argues that promising to keep rates low for a long time (or high, for that matter) independently amplifies the transmission of monetary policy beyond the effect of current-period interest rates alone, by shifting the short end of the yield curve. Central banks including the RBA have certainly tried jawboning in this way from time to time. The prevailing view, though, is that the potential cost of reputational loss if things do not turn out as predicted outweighs the benefits of a slightly stronger transmission mechanism.
In this context, it is the interpretation of data that provides the signal about future policy directions. This is why it was noteworthy that the Governor still characterised the labour market as ‘a little tight’ after the September meeting, even though the Board’s post-meeting communication did not. We have been noting for some time that the RBA staff have a downbeat view of supply capacity. Together with the RBA’s oft-stated concerns about inflation, this is why the Deputy Governor’s ‘hawkishness’ did not surprise us.
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