Amid criticism this week that the Reserve Bank of Australia (RBA) has been “damaging the economy” with elevated interest rates, Governor Michele Bullock on Thursday defended the central bank’s stance, reaffirming that no easing of monetary policy is expected in the near term.
Speaking at a luncheon for money market and banking professionals, Bullock emphasized that core inflation remains stubbornly high, with only a slight decrease over the past year. She underscored the RBA’s commitment to monitoring inflation closely for any further increases.
“It is premature to be considering rate cuts,” Bullock stated during an annual event for the Anika Foundation, a charity associated with the financial markets. “However, if economic conditions diverge from expectations, the board will respond accordingly.”
She added, “If the economy develops as anticipated, the board does not foresee a situation where rate cuts will be possible in the near future.”
Bullock’s comments follow remarks by Treasurer Jim Chalmers earlier in the week, who noted that high interest rates are straining the economy. This comes on the heels of second-quarter GDP data revealing the weakest growth since the early 1990s, excluding the COVID-19 pandemic, alongside a sharp decline in household spending reminiscent of the global financial crisis.
Bullock’s firm stance is likely to be seen as a robust defense of the RBA’s independence and its commitment to managing inflation over time. However, political pressure may increase in the coming months, especially with a federal election anticipated in early 2025.
While Australia has so far skirted a recession, a continued slowdown from the 0.2% GDP growth rate seen in the second quarter could heighten the risk of a sharper downturn, potentially leading to increased unemployment.
Bullock highlighted that the RBA’s primary objective remains reducing inflation, which rose by 3.9% in underlying terms in the second quarter, while also striving to maintain full employment. However, with the economy slowing and interest rates remaining at 4.35%, the challenges are mounting.
Concluding her speech, Bullock reiterated that while the RBA is committed to both lowering inflation and supporting employment, achieving the inflation target is the priority. “Ultimately, our goal of full employment cannot be sustained if inflation remains above target indefinitely,” she said.
