Australia's central bank governor, Michele Bullock, announced on November 28 that core inflation remains too elevated to consider interest rate cuts in the near future, effectively denying any relief for borrowers at the upcoming policy meeting in December.
During an economic conference, Bullock reported a core inflation rate of 3.5% for the third quarter, exceeding the Reserve Bank of Australia (RBA) target range of 2% to 3%. She emphasized the need for restrictive policy measures until the inflation target can be confidently met.
"As it currently stands, underlying inflation is still too high to be considering lowering the cash rate target in the near term," Bullock stated. She projected a sustainable return to the target range may not occur until 2026.
Despite indications that demand and supply are stabilizing, with higher borrowing costs impacting consumer spending, Bullock noted that adjustments would take time. The RBA has maintained its cash rate at 4.35% for the past year, with market expectations showing only a 10% chance of a quarter-point cut at the December 10 meeting.
The likelihood of a rate reduction in February is estimated at 23%, with a drop to 4.10% not fully anticipated until May. This stance contrasts with other developed economies, such as New Zealand, which recently reduced rates by 50 basis points to 4.25%, placing them below Australia's rate.
Bullock highlighted that different inflation and employment priorities among central banks account for these varying approaches. The RBA's strategy has aimed to preserve job gains from the pandemic, resulting in higher inflation relative to its peers.
Australia's unemployment rate remains low at 4.1% as of October, with strong demand for workers, particularly in health care and education sectors. Bullock remarked on the tight labor market conditions compared to other economies, indicating that current labor market dynamics are not conducive to achieving low and stable inflation.