Australia’s central bank governor reiterates interest rate cuts are premature By Reuters

SYDNEY (Reuters) – Australia’s top central banker reiterated on Thursday it was premature to consider short-term interest rate cuts as inflation remained too high, maintaining a dovish stance even as data showed the economy struggles to start.

In a speech in Sydney, Reserve Bank of Australia (RBA) Governor Michele Bullock said reducing inflation to the 2-3% target remained the central bank’s top priority.

“If the economy is performing broadly as anticipated, the board does not expect to be in a position to cut rates in the near term,” Bullock said.

The demanding rhetoric came even as data this week showed the economy barely grew in the second quarter as household consumption fell. A monthly consumer price report also showed that headline inflation eased to 3.5 percent in July.

Bullock pointed out that domestic inflationary pressures, such as housing and market services, are still contributing to above-target inflation, which is why core inflation is not expected to slow to the target range until late 2025.

She acknowledged the substantial uncertainty surrounding the bank’s central outlook, adding that the board would respond appropriately to any change in circumstances.

However, Bullock warned that if high inflation were to take root in expectations, the RBA would need to slow the economy further to bring it to heel.

The RBA has held rates steady at 4.35% since last November, deeming it tight enough to bring inflation to target while preserving employment gains.

“Ultimately, however, it is critical to remember that our goal of full employment is not met if we let inflation remain above target indefinitely,” Bullock said.

Markets are still betting there is a 42% chance the RBA will cut in November, partly due to expectations the US Federal Reserve will ease policy this month, joining other major central banks.

An RBA cut by December is almost fully priced.

Bullock noted that inflation for retail goods is now close to its historical average, while earnings for administered prices are only slightly above their long-term average.

Rent inflation is likely to remain elevated for some time, while labor cost growth is still strong, reflecting wage gains and weak productivity growth, she said.