‘Still some way to go’ to meet inflation targets: RBA
RBA boss Michele Bullock has warned cash-strapped Australian mortgage-holders their situation could be worse, as the bank continues to weigh further interest rate rises.
Bullock said inflation remained an issue for the economy, and bringing it back to the Reserve Bank’s 2-3 per cent target range was still some way off.
She said on Friday that a new Statement on the Conduct of Monetary Policy made it more explicit that the RBA should aiming to have inflation at 2.5 per cent.
“We still have some way to go before we meet meet our targets,” she said during a parliamentary hearing on Friday.
The statement is an agreement between the government and the central bank and guides monetary and central banking policy.
The first update since the Albanese government was elected was released late last year.
The stronger focus on the middle of the RBA’s target inflation band sparked speculation it could have implications for the policy tightening cycle that is under way.
The central bank board left the official cash rate unchanged at 4.35 per cent at its first meeting of the year, when it met on Monday and Tuesday. The decision had been widely expected after signs inflation is easing.
But Bullock has repeatedly warned that further interest rate rises this year cannot be ruled out – despite most forecasters tipping cuts are likely to begin later in 2024.
“We’ve stopped again, we’re holding again, and we’re waiting for the data. And the data is hopefully going to indicate to us where the risks are emerging,” Bullock said on Friday.
“If it looks like consumption is slowing more quickly, then there’s an opportunity for us to drop interest rates.”
But she said if would be harder to continue to bring inflation down if expectations “adjust up”.
“They’re the two risks we’re trying to balance,” she said.
“It’s not an absolute science. It’s an art … balancing the risks on this. And as we get closer and closer to the target range, if you like, we can get more confident in our forecasts.”
The consumer price index fell to 4.1 per cent in the 12 months to December – its lowest level in two years – from 5.4 per cent in the year to September.
Bullock said the job of getting inflation under control was not yet complete.
“One thing that has not changed since our previous hearing in 2023 is the challenge presented by high inflation,” she said.
“We all remain acutely aware that the cost of living is rising much faster than it has over recent decades.”
Bullock also repeated her view that the Reserve Bank did not need to see inflation back at 2.5 per cent before it began cutting rates.
“I don’t think we do. But we do need to be very confident that we’ll get there as we start to remove the restrictive nature of policy,” she said.
The central bank does not forecast inflation falling back to 3 per cent until 2025, and estimates it will be 2026 before it hits 2.5 per cent.
– with AAP