More bad news for Aussie borrowers as RBA chief makes rates call

Daily Mail​

6 days ago

The Reserve Bank has declared interest rates won't be slashed in Australia like in other major Commonwealth nations because inflation is still too high. While underlying inflation has eased, Governor Michele Bullock says she needs more evidence that it will stay at the mid-point of the RBA's two to three percent target. The RBA left the cash rate on hold at 3.85 percent on July 8, surprising financial markets and economists, but Ms Bullock said borrowers expecting big rate cuts in 2025 and 2026 would be disappointed.
'Interest rates in Australia did not rise as high as they did in some other economies, and so we may not need to lower them as much on the way down,' she told the Anika Foundation Fundraising Lunch in Sydney on Thursday. 'The board continues to judge that a measured and gradual approach to monetary policy easing is appropriate.' Australia's cash rate now is much higher than Canada 's equivalent 2.75 percent policy rate and New Zealand 's 3.25 percent level.
'Some other countries did raise them much higher. Countries like Canada and New Zealand experienced much higher unemployment,' she said. Australian borrowers are now paying higher rates on their mortgages than homeowners in Canada and New Zealand, despite underlying inflation in May falling to just 2.4 percent. Ms Bullock said more comprehensive June quarter consumer price index data, due out next week, would have to show underlying inflation was much lower than the March quarter's 2.9 percent.
'We expect trimmed mean inflation to fall a little further in the June quarter in year-ended terms,' she said. 'However, the monthly CPI indicator data, which are volatile, suggest that the fall may not be quite as much as we forecast back in May. 'We still think it will show inflation declining slowly towards 2.5 percent, but we are looking for data to support this expectation.'
Ms Bullock said Donald Trump's tariffs were now less likely to spark a major global economic slowdown, and that they would warrant more RBA rate cuts to stimulate an already weak Australian economy. 'The likelihood of a severe downside "trade war" appears to have diminished,' she said. But if worse came to worst with the world economy, then the RBA would be more inclined to slash interest rates, like they did during the Global Financial Crisis in 2008 and 2009.
'There is still uncertainty and unpredictability in the global economy,' Ms Bullock said. 'The board's view is that monetary policy is well placed to respond decisively to adverse international developments if needed.' Financial markets are still expecting the RBA to cut rates on August 12, followed by more relief in November and December that would take it back to 3.1 percent for the first time since February 2023.
Australia's economy has signs of weakness with unemployment in June rising to 4.3 percent, the highest level since November 2021 when Sydney and Melbourne were emerging from Covid lockdowns. 'The unemployment rate has risen a bit - it's because there's been more people looking for work than there were jobs created,' she said. Australia's jobless rate is lower than Canada's 6.9 percent and New Zealand's 5.1 percent.
Ms Bullock argued the RBA cash rate in late 2023 of 4.35 percent, following 13 increases, was still much lower than the equivalent US Federal Reserve rate of 5.25 percent to 5.5 percent during the post-Covid era of soaring global inflation. Canada's equivalent policy rate rose to five percent while New Zealand's hit 5.5 percent. 'The board could have chosen to match the more significant rate increases of some other central banks to bring inflation back to target more quickly,' she said.
'But this could have risked a sharper and more persistent increase in the unemployment rate. 'Instead, the board judged that a measured approach was consistent with its dual mandate. 'We increased the cash rate quickly at first – but we didn't go as high as some other central banks.' From November, the Australian Bureau of Statistics will be publishing a comprehensive monthly inflation data series.
This would replace the quarterly consumer price index data and the less comprehensive monthly indicators introduced in 2022, bringing Australia into line with the likes of the US which has comprehensive monthly inflation data. Australian Statistician Dr David Gruen said this would enable the Reserve Bank to make better monetary policy decisions. 'The transition to a complete, internationally comparable monthly CPI as Australia's primary measure of headline inflation will provide better information for monetary and fiscal policy decisions that have a direct impact on all Australians,' he said.