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(Bloomberg) — Australia’s central bank is “vigilant” over upside risks to inflation and won’t hesitate to raise interest rates further if needed, Governor Michele Bullock said, reinforcing her hawkish rhetoric from earlier this week.
“I know this is not what people want to hear,” Bullock said Thursday in a speech in her hometown of Armidale in northern New South Wales. “But the alternative of persistently high inflation is worse. It hurts everyone.”
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The governor spoke two days after the Reserve Bank held its cash rate at a 12-year high of 4.35% and lifted its forecasts for inflation and economic growth in the period ahead. She said in her address that the RBA board “explicitly considered” whether another rate hike was required to ensure inflation continues to decline in a reasonable timeframe before deciding to pause.
The RBA is lagging behind global central bank counterparts that have either begun policy easing, or plan to do so soon, as they gain control over inflation. Underlying CPI in Australia is only expected to return to the RBA’s 2-3% target in late 2025, from 3.9% in the second quarter of this year.
Bullock, in her speech, pointed to stronger domestic demand to explain why services prices are high and proving “very sticky.” The RBA anticipates that demand growth will pick up over the next year, she added.
“The effect of this is that the board’s expectations for when inflation will come back to target have been pushed out,” she said.
The governor said the rate-setting board was confident that this week’s on-hold decision would still help the RBA achieve its mandate of cooling inflation while preserving job gains.
Australia’s more cautious policy stance has put it down the back of the global cycle. The Bank of Canada became the first G-7 central bank in June to begin easing. The European Central Bank soon followed as did the Bank of England, while the Federal Reserve has signaled it’s on course to do so in September.
Financial markets are pricing 80% odds for a first RBA rate cut in December.
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