Australia’s Central Bank Governor Reiterates That Rate Cuts Are Premature, According to Reuters

SYDNEY (Reuters) – Australia’s top central banker reiterated on Thursday that it is too early to consider any near-term rate cuts, as inflation remains elevated, maintaining a hawkish stance amid signs of economic struggle.

In a speech delivered in Sydney, Reserve Bank of Australia (RBA) Governor Michele Bullock emphasized that reducing inflation to the target range of 2-3% is the central bank’s primary focus.

"If the economy unfolds as expected, the board does not foresee being in a position to cut rates in the near future," Bullock stated.

This assertive position comes despite data revealed earlier this week, indicating minimal economic growth in the second quarter, heavily influenced by sluggish household consumption. Additionally, a recent consumer price report showed that headline inflation fell to 3.5% in July.

Bullock highlighted that domestic inflationary pressures, particularly in housing and market services, continue to push inflation above the target. As a result, core inflation is not anticipated to decrease to the target range until late 2025.

She acknowledged the considerable uncertainty surrounding the bank’s central forecasts, assuring that the board would adjust its approach in response to any significant changes in the economic landscape.

However, Bullock cautioned that if high inflation becomes entrenched in expectations, the RBA may need to slow the economy even more to regain control.

The RBA has maintained the interest rates at 4.35% since November, determining this level to be strict enough to bring inflation back to target while also sustaining employment growth.

“It is important to remember that our goal of full employment cannot be achieved if inflation remains above the target for an extended period,” Bullock remarked.

Market speculations indicate a 42% chance that the RBA might implement a rate cut in November, influenced partly by expectations that the U.S. Federal Reserve will ease its policies in the coming month, aligning with trends seen in other major central banks. A cut by December is nearly priced in by the markets.

Bullock observed that inflation for retail goods is now close to its historical average, while the rise in administered prices remains slightly above its long-term average. She noted that rent inflation is likely to stay high for some time and that wage growth, coupled with weak productivity, is contributing to strong increases in labor costs.