RBA governor Michele Bullock tells economics committee inflation challenge ‘not over’


An inflation rate with a four in front of it “isn’t good enough”, the Reserve Bank governor says as she defended the possibility of more rate rises this year.

Michele Bullock appeared before the House of Representatives economics committee in Canberra on Friday, days after the board decided to keep the cash rate steady at 4.35 per cent.

She conceded that while there were “encouraging signs” that inflation pressures were easing, high inflation was “still a challenge”, as were ongoing cost-of-living pressures, but warned that pre-emptively lowering interest rates could have drastic ramifications.

“The board understands that rising interest rates have put additional pressure on households that have mortgages,” she said.

“But the alternative of lower interest rates and high inflation for a prolonged period would be even worse for these households as well as all the households without mortgages.”

She said the board had neither ruled out, nor ruled in, another increase to the cash rate.

She said while inflation seemed to be moderating at a faster pace than expected – down to 4.1 per cent in the December quarter – the challenge “isn’t over”, and warned the bank would do “what we need to do” because the alternative is “bad for everyone”.

Borrowing a phrase from her predecessor, Phil Lowe, Ms Bullock said the central bank needed to take the “narrow path” – referring to the policy of achieving the maximum level of employment consistent with low and stable inflation. 

“We’re trying to bring inflation back to target without slowing the economy more than necessary on demand, or risking high inflation for longer,” she said.

Ms Bullock emphasised the RBA was aiming for the middle of the 2 to 3 per cent inflation target, in line with a new agreement with Treasurer Jim Chalmers.

“The new statement on the conduct of monetary policy endorses this, but it makes it more explicit that we should be aiming for the middle of the range which is 2.5 per cent. So we still have some way to go before we meet our target,” she said.

The central bank expects the midpoint to be reached by mid-2026.

“Inflation will still have been outside the target range for four years. The longer inflation remains high and outside the target range, the greater is the risk that inflation expectations of households and businesses will adjust higher,” Ms Bullock said.

“If that happens, then the risks of inflation becoming entrenched at a higher level will rise.”

She said wages growth was expected to slow in some sectors, even though weak productivity has contributed to an increase in labour costs.

Stage 3 rejig will have ‘no impact’

Ms Bullock says the government’s amendments to stage 3 tax cuts will have “no impact” on the central bank’s inflation forecasts.

Under changes to the Morrison-era legislated tax cuts that passed the House this week, the government will redistribute tax cuts so that every taxpayer will receive a tax cut.

Incomes between $18,200 and $45,000 will now be taxed at 16 per cent, down from 19 per cent. The 30 per cent tax rate will apply on incomes between $45,000 and $135,000, and then a 37 per cent rate – which was abolished by the original stage 3 – will apply between $135,000 and $190,000. Above that, the 45 per cent rate will apply.

“They are staying within the same fiscal envelope, it’s just a redistribution,” Ms Bullock said.

“So it will have no material impact at all on inflation or just on moving towards the (target) band.”

RBA ‘closely’ watching China

Ms Bullock said the global economy had fared better over the last year than had been originally expected, but warned China remained a risk.

“The US in particular has turned out to be much more resilient than I think many people were expecting,” she said.

“I think at one point there was a discussion of hard landing, then it moved to soft landing, and then no landing at all, and it’s continuing to demonstrate great resilience.

“It’s fair to say though, that we are observing global growth slowing … Growth in China (especially) has been quite sluggish, and that’s something for us to watch.”

The collapse of a major Chinese property developer has fuelled global concerns about domino effects

Ms Bullock said if there was an impact on Australia’s commodity prices or exports to China, that could have serious implications for the domestic economy.

“I think the way I would describe it is that we are watching what’s going on overseas closely,” she said.

Public invited to help redesign $5 note

The Reserve Bank will be taking public feedback on redesigning the $5 note, in a bid to “honour and celebrate the culture and history of First Nations peoples”.

Queen Elizabeth II has featured on the $5 note since 1992, but after her death the central bank revealed it would replace the motif of the monarch with a design honouring Australia’s Indigenous heritage, in place of King Charles.

“As a first step in determining the design we will be asking members of the public over the course of March and April to share with us what they think should be on our $5 banknote,” Ms Bullock said.

“In recent weeks, we’ve also begun visiting First Nations community organisations in key regional and remote locations across Australia and the Torres Strait, and we’re doing that to engage with local communities about the theme nomination process.

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