Michele Bullock has made a bold move – and it’s not the rate rise

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Reserve Bank governor Michele Bullock is pretty good at holding a line. She can identify when journalists are trying – sometimes quite sneakily – to get her to give what’s called “forward guidance”: a sense of what the next interest rate moves might be. And she very often sidesteps those questions with a knowing smile.

This week, though, she did something a little unusual. Instead of putting on her poker face and batting away probing questions about future moves, she gave journalists – and the public – a bit more to work with.

In fact, her press conference was interesting enough that her words visibly shifted where people were parking their money.

Markets – largely made up of traders who shuffle money around and keep an eagle eye on anything that could affect their investments (such as interest rates) – had been betting on an interest rate hike, so there was little fanfare when the decision was announced to raise interest rates for the third consecutive time this year.

But by the end of the press conference, the S&P/ASX200 – a broad gauge of the Australian sharemarket – had climbed. Why? Because Bullock had played down how likely the bank might be to keep cranking interest rates.

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Most traders become more optimistic about the growth prospects of Australia’s companies (and invest more money in them) when interest rates look like they’ll ease – or when they seem like they might not go up by as much as they thought. That’s because lower interest rates lower borrowing costs for those companies and might lead to customers spending more rather than saving.

So, what exactly did Bullock say to make traders more bullish?........

© The Age