Australia’s Central Bank Stance on Interest Rates

SYDNEY (Reuters) – Australia’s central bank will not hesitate to raise interest rates to control inflation, according to its chief on Thursday. This reinforces a hawkish tone as underlying inflation remains high.

Reserve Bank of Australia (RBA) Governor Michele Bullock, speaking in her hometown of Armidale, New South Wales, emphasized vigilance against inflation risks, shortly after the bank decided to hold rates steady.

“I know this (raising rates) is not what people want to hear. But the alternative of persistently high inflation is worse. It hurts everyone,” Bullock stated.

The central bank has maintained its policy since November, with the current cash rate of 4.35% — a significant increase from the 0.1% during the pandemic. This rate is deemed restrictive enough to bring inflation down to the bank’s target band of 2%-3% while preserving employment.

However, core inflation, which stood at 3.9% last quarter, is only projected to decrease towards the end of 2025.

Bullock, who suggested a near-term rate cut is unlikely, stated that the central bank does not foresee rates dropping quickly given inflation risks, robust employment data, and feedback from businesses.

“We just cannot see what it is at the moment that is going to allow us to lower interest rates. Remember that we didn’t go as far as everyone else. So we need to be a little bit careful,” she said.

If the economy slows faster than expected, the central bank may consider cutting rates, she added.

Despite Bullock’s hawkish remarks, markets still anticipate a 46% chance of rate reductions starting in November, with December nearly fully priced in for the first easing.

Australian bank Westpac now expects the first rate cut to occur in February, delaying its previous prediction for a November cut.

“The RBA’s conviction levels around these forecasts are evidently not high enough to consider moving in the short term,” stated Luci Ellis, chief economist at Westpac.