The woman who decides the fate of millions of mortgage holders has announced that no rate cut will happen anytime soon, regardless of what other countries do this year.
Reserve Bank Governor Michael Bullock told a parliamentary hearing on Friday that Australia would not copy the approach of other central banks that cut interest rates this year, while New Zealand offered some relief this week.
“Financial markets are still pricing in a rate cut in Australia before the end of the year,” he told the House Economics Committee in Canberra.
However, the message from the panel was that it is premature to think about rate cuts: inflation is still high and fundamentals are not expected to return to the band’s peak until the end of next year.
‘Based on what the board currently knows, it does not expect to be in a position to lower rates anytime soon.
“I understand that this is not what families want to hear: that mortgage holders are feeling a reduction in their cash flows due to rising interest rates in recent years.”
The Reserve Bank of New Zealand this week cut interest rates for the first time since 2020, following the approach of its peers in Canada, the European Union and the United Kingdom.
But Bullock also argued that doesn’t mean other central banks will start cutting rates aggressively.
Reserve Bank Governor Michael Bullock told a parliamentary hearing on Friday that Australia would not copy the approach of other central banks that cut interest rates this year, with New Zealand offering some relief this week.
“Other central banks are cautious about the future path of interest rates,” he said.
“Some have reduced their official charges a bit, but insist the job is far from done and the policy remains restrictive.”
Australia’s cash rate of 4.35 percent is at its highest level in more than 12 years, compared to New Zealand’s 5.25 percent, the UK’s 5 percent and Canada’s 4.5 percent.
These central banks, along with the European Union, have cut interest rates this year.
“It’s the same here in Australia – we haven’t raised interest rates like other central banks and we’ve received some criticism for that,” he said.
Former RBA board member Warwick McKibbin, now a professor at the Australian National University, has suggested the Reserve Bank tripled rates to 5.1 percent before the global financial crisis.
“Indeed, some commentators continue to call for further tightening of monetary policy,” Ms Bullock said.
“We are trying to balance reducing inflation over a reasonable period of time without causing undue damage to the labor market.”
Australia’s cash rate of 4.35 percent is at its highest level in more than 12 years, compared to New Zealand’s 5.25 percent, the UK’s 5 percent and Canada’s 4.5 percent.
This month, the Reserve Bank left interest rates unchanged, but released new forecasts predicting core inflation (excluding volatile prices) to be within the RBA’s target of 2 to 3 percent until the end of 2025.
Unemployment hit a two-year high of 4.2 percent last month as interest rate hikes hit their most aggressive since the late 1980s.
Bullock said the Reserve Bank would try to improve its forecasts, which in 2021 saw rates remain unchanged at a record 0.1 percent until 2024, when his predecessor Philip Lowe announced.
Instead, borrowers endured 13 rate hikes in 2022 and 2023, leading to a 68 percent increase in variable monthly mortgage payments.
“We have to be willing to learn from our mistakes,” Ms Bullock said.
Headline inflation, also known as the consumer price index, rose to 3.8 percent in the year to June.
Bullock says construction costs are included in the CPI, which means commodity inflation is high in Australia.
“There is a shortage of professionals, so their costs are increasing, and there are costs, especially energy-intensive products like concrete, which have also contributed to housing construction costs,” he said.
“All of these things continue to increase construction costs in Australia, which are in our CPI, which means our commodity price inflation is slightly higher than overseas.”
Bullock says construction costs are included in the CPI, which means commodity inflation is high in Australia.
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