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RBA boss Michele Bullock says stage-three tax cuts have ‘no material impact’ on forecasts

RBA boss won't rule out future rate hikes

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Reserve Bank governor Michele Bullock says the stage-three tax cuts won’t affect central bank forecasts for the economy, with inflation predicted to reach the target within two years.

Speaking to reporters on Tuesday after the RBA opted to pause the cash rate target at 4.35 per cent in February, Bullock said the revamped tax cuts wouldn’t spark a jump in inflation.

“I don’t think it’s a material issue,” Bullock said.

“If you look at Treasury’s analysis, which was published on the website, they actually did a little bit of analysis to look at what might happen. Depending on different marginal propensity to consume, it’s very at the margin.

“The bottom line really is that the fiscal envelope is the same. It’s the same amount of money being handed to households – it’s distributed slightly differently.

“We don’t think it has any implications for our forecasts.”

The Albanese government unveiled changes to the controversial stage-three tax cuts last month, opting to deliver additional relief to lower- and middle-income households as part of a response to the cost of living.

Political opponents to the changes have tried to argue that the plan will worsen inflation, including the Coalition and business council.

Bullock’s comments came as part of the RBA’s first post-interest rates decision press conference, which was one of the recommendations stemming from a review of the bank.

She also said the RBA was not going to rule out either hiking interest rates or cutting them in 2024, explaining that central bankers want more evidence that inflation will keep easing.

“We are not ruling in or out anything,” Bullock said.

“We are focused on bringing inflation down. We still think the risks are balanced. But as you know, the further we go out in our forecasts, the more risk there is around them.”

Major bank forecasters have pencilled in September for the first rate cuts, but there is still considerable disagreement among experts about when the Reserve Bank will deliver relief.

EY chief economist Cherelle Murphy said Bullock played down the certainty of rate cuts that have been priced in by markets, meaning that neither a fall or rise in rates can be ruled out.

“The message from the governor today was clear – despite the mortgage pain being felt by many in the community, the Reserve Bank will remain vigilant in the fight against inflation,” Murphy said.

Oxford Australia head of macroeconomic forecasting Sean Langcake said the RBA is still worried about the upside risks to the prices outlook, namely services inflation.

“Goods price inflation is falling away faster than the RBA anticipated due to the resolution of earlier supply shocks, and weakening domestic demand,” Langcake said.

“Services inflation has played out more or less in line with the bank’s forecasts, and remains the key upside risk to the outlook.”

The RBA did, however, publish fresh forecasts on Tuesday that foreshadow a more optimistic outlook for inflation.

Underlying price growth is now predicted to fall from 4.2 per cent last December to 3.6 per cent by June (previously 3.9 per cent) and 3.1 per cent by December (previously 3.3 per cent).

Inflation is slated to return to the midpoint in the target band in 2026, according to the figures.

The outlook for jobs, meanwhile, has worsened slightly on the back of weaker economic growth, with the jobless rate set to rise to 4.2 per cent by June (was 4 per cent).

The statement said that effects of 13 interest rate hikes since May 2022 are having an effect on households, with interest payments as a proportion of disposable income rising 3.25 percentage points to 7 per cent.

“Based on the current cash rate, total interest payments are projected to increase to around 8 per cent of household disposable income by the end of 2024, which is slightly below the 2010-2011 peak when the cash rate reached 4.75 per cent,” the RBA’s latest statement said.

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