inflation
rate cut has been decisively dismissed by RBA Governor Michele Bullock.
Despite being the lowest rate since the peak of the pandemic, there are concerns regarding the sustainability of this decline, which is preventing the RBA from considering a rate adjustment.
“There is still a considerable way to go to achieve a sustainable return of inflation within our 2–3 per cent target range,” she expressed at the Committee for Economic Development of Australia during her address last night.
“The term ‘sustainably’ is crucial as it indicates that we must look beyond temporary elements that can sway the headline inflation rate intermittently…
“While these temporary factors may have undoubtedly benefitted numerous Australians, our method is to somewhat overlook them to gain a clearer understanding of where inflation is likely to stabilize in the medium term.”
The RBA predicts that inflation won’t sustainably hit the middle of the target range until 2026, and Bullock mentioned that the currently low levels of unemployment also hinder the prospect of a rate cut.
“The unemployment rate is currently around 4.1 per cent, which is significantly low by historical measures and in comparison to many other nations,” she remarked.
“Furthermore, the increase in the unemployment rate over the past two years has been notably less than in several other countries.”
Nevertheless, Bullock acknowledged that inflation could revert to the target more swiftly than anticipated, and the bank would adjust its position accordingly if that occurred.
After her speech, she was inquired about the effects of US President-elect Donald Trump’s plans to impose substantial trade tariffs on Canada, Mexico, and China.
“If significant tariffs are imposed… Chinese trade will likely seek alternative outlets.
“Australia could potentially benefit from this scenario. Therefore, we might actually observe some deflationary impacts for Australia if the situation develops in this manner.”
Bullock’s remarks came as the federal parliament finally approved long-discussed legislation to reform the Reserve Bank, which includes the establishment of a second board dedicated to specifically focusing on interest rate decisions.
The dual-board framework is slated to be implemented in March, just in time for the central bank’s second cash rate decision of 2025.
