RBA Governor Michele Bullock has poured cold water on the prospect of an interest rate cut anytime soon, raising the spectre of a potential hike in a speech today.
The market expects the Reserve Bank to drop rates down from their current 13-year high of 4.35 per cent by Christmas, but Bullock said such talk is “premature”.
“The board’s message following its meeting only a few weeks ago was that it is premature to be thinking about rate cuts,” she said in an address to the Anika Foundation in Sydney.
“Circumstances may change, of course, and if economic conditions don’t evolve as expected, the Board will respond accordingly.
“But if the economy evolves broadly as anticipated, the Board does not expect that it will be in a position to cut rates in the near term.”
Bullock repeated her message from recent months that while she and the RBA understand interest rates hurt households, it’s high inflation that is far more harmful, even raising the possibility of another rate increase if the CPI remains above the 2-3 per cent target.
“If businesses and workers come to expect that prices and wages will continue rising quickly this adds to inflationary pressures, requiring even higher interest rates to bring inflation down,” she said.
“Ultimately, we would need to slow the economy down by more, which would result in a larger rise in unemployment and higher risk of recession.”
“I have no comment to make on the comments,” she said, later hosing down claims from Opposition Leader Peter Dutton that she and Chalmers were at war.
“He’s doing his job and I’m doing mine. I wouldn’t use those sorts of words.”
Bullock did, though, highlight how tricky economic conditions were, and that young people and those on low incomes are doing it toughest.
“I think many people have forgotten how bad it is – people under the age of 40 will not have experienced high inflation until the last few years,” she said.
“There is a reason why there is so much talk about the cost of living – high inflation hurts everyone, and especially the most vulnerable.
“It reduces what people can buy with their wages, erodes the value of savings, and it disproportionately hurts those on low or fixed incomes.
“This is why it is imperative that we return inflation to levels that mean it is in the background again.”
