- RBA Governor says rates won’t be slashed like overseas
The Reserve Bank has declared interest rates won’t be slashed in Australia like in other nations because inflation is still too high.
While underlying inflation has eased, Governor Michele Bullock says there needs to be more evidence that it will stay at the mid-point of the RBA’s two to three per cent target.
The RBA left the cash rate on hold at 3.85 per cent on July 8, surprising financial markets and economists, but Ms Bullock said borrowers expecting big rate cuts in 2025 and 2026 would be disappointed.
‘Interest rates in Australia did not rise as high as they did in some other economies, and so we may not need to lower them as much on the way down,’ she told the Anika Foundation Fundraising Lunch in Sydney on Thursday.
‘The board continues to judge that a measured and gradual approach to monetary policy easing is appropriate.’
Australia’s cash rate is much higher than Canada’s equivalent 2.75 per cent policy rate and New Zealand’s 3.25 per cent level.
This is despite Australian underlying inflation in May falling to just 2.4 per cent.
Ms Bullock said more comprehensive June quarter consumer price index data, due out next week, would have to show underlying inflation being much lower than the March quarter’s 2.9 per cent.
The Reserve Bank has declared interest rates won’t be slashed in Australia like in other nations because inflation is still too high
‘We expect trimmed mean inflation to fall a little further in the June quarter in year-ended terms,’ she said.
‘However, the monthly CPI Indicator data, which are volatile, suggest that the fall may not be quite as much as we forecast back in May.
‘We still think it will show inflation declining slowly towards 2.5 per cent, but we are looking for data to support this expectation.’
Ms Bullock said Donald Trump’s tariffs were now less likely to spark a major global economic slowdown, and warrant the need for more RBA rate cuts to stimulate an already weak Australian economy.
‘The likelihood of a severe downside “trade war” appears to have diminished,’ she said.
But if worse came to worse with the world economy, then the RBA would be more inclined to slash interest rates, like they did during the Global Financial Crisis in 2008 and 2009.
‘There is still uncertainty and unpredictability in the global economy,’ Ms Bullock said.
‘The board’s view is that monetary policy is well placed to respond decisively to adverse international developments if needed.’
While underlying inflation has eased, Governor Michele Bullock says there needs to be more evidence that it will stay at the mid-point of the RBA’s two to three per cent target
Financial markets are still expecting the RBA to cuts rates on August 12, followed by more relief in November and December that would take it back to 3.1 per cent for the first time since February 2023.
Australia’s economy has signs of weakness with unemployment in June rising to 4.3 per cent, the highest level since November 2021 when Sydney and Melbourne were emerging from Covid lockdowns.
Ms Bullock argued the RBA cash rate in late 2023, of 4.35 per cent, was still much lower than the equivalent US Federal Reserve rate of 5.25 per cent to 5.5 per cent during the post-Covid era of soaring global inflation.
‘The board could have chosen to match the more significant rate increases of some other central banks to bring inflation back to target more quickly,’ she said.
‘But this could have risked a sharper and more persistent increase in the unemployment rate.
‘Instead, the board judged that a measured approach was consistent with its dual mandate.
‘We increased the cash rate quickly at first – but we didn’t go as high as some other central banks.’
