Central bank Governor Michele Bullock has made it clear that the Reserve Bank of Australia (RBA) is not thinking of cutting interest rates anytime soon.
In her address on Sept. 5, Bullock said that although inflation has dropped it was “premature to be thinking about rate cuts.”
She maintained the policy will need to be “sufficiently restrictive until RBA is confident that inflation is moving sustainably towards the target range.”
“While circumstances may change, and the Board will respond if economic conditions evolve differently than expected, she affirmed that if the economy follows its anticipated trajectory, the RBA “does not expect it will be in a position to cut rates in the near term.”
However, the governor also predicted that according to the latest forecast, underlying inflation is expected to be back within the target range by the end of next year and to approach the midpoint by 2026.
“The Board is trying to bring inflation back to target in a reasonable timeframe while preserving as many of the gains in the labour market that we have seen in the past few years as possible.”
There has been pressure on the central bank to cut rates after the Australian Bureau of Statistics revealed the country’s economic growth was still sluggish—the lowest since the 1991-92 financial year, bar the pandemic years.
Inflation Still Too High: Bullock
Bullock reiterated that the Board decided to leave the cash rate unchanged at 4.35 percent following its August meeting.“While inflation has fallen substantially since its peak, it is still some way above the midpoint of the 2–3 per cent target range.”
The governor pointed out that the lingering effects of the COVID-19 pandemic and the war in Ukraine have started to wane, and the market is showing early signs of improvement.
Inflation in specific sectors, such as retail goods, consumer durables, and groceries, is now approaching its historical average.
“Inflation for administered prices, so these are prices that are at least partly regulated, or they relate to items for which the public sector is a significant provider. Inflation there is only a little above its long-run average.”
Bullock acknowledged that the Board is aware of the impact high interest rates are having on Australians, but stood by the RBA’s approach, stating that it is in the larger interest of the country.
“We know that restrictive monetary policy settings are causing hardship to some households and businesses. We’re very conscious of that. But inflation causes hardship, too, for all Australians, and particularly for the more vulnerable in our community,” she said.
Housing Prices Still high
Meanwhile, housing continues to be a pain point for the economy. The key drivers elevating inflation at the moment are housing costs and market services.“They remain above their average levels, and they’ve been easing only gradually.”
On the housing side, this reflects both construction cost growth and strong increases in rents.
“Year-ended growth in advertised rents is still high. This reflects pressure from a rebound in housing demand and limited supply response.”
She added that new dwelling inflation has declined from its earlier peak as materials costs have eased, but it continues to be elevated.
No Comment on Treasurer’s Comments
Despite Treasurer Jim Chalmers saying the Board was negatively impacting the economy with high interest rates, Bullock refrained from commenting on the matter.“He’s doing his job and I’m doing mine. I wouldn’t use those sorts of words,” she said.
She also addressed questions about excess government spending tactfully, calling it is “not the main game.”
Bullock pointed out that consumption is currently weak, as seen in the latest national accounts, which should be the main focus to steer the economy back on track.
“If that doesn’t happen, it will be a crucial indicator, especially for inflation outcomes.”
