(Bloomberg) -- Australia’s central bank remains some way off easing monetary policy, Governor Michele Bullock said, as inflation is proving persistent and will only return back to the target range late next year.
“The board remains vigilant to upside risks to inflation,” Bullock said in her opening statement to a parliamentary panel in Canberra on Friday. “It is premature to be thinking about rate cuts.”
Bullock’s comments come a week after the Reserve Bank left the key rate at a 12-year high of 4.35% and maintained its hawkish rhetoric. Money markets and economists reckon the RBA’s next move will be a cut, though they’re split on the timing. Traders are betting December will be the beginning of the easing cycle, while the consensus of economists is it will only start in 2025.
Supporting the RBA’s caution, data this week showed Australia’s labor market continued to add jobs at a solid pace while wage growth remains elevated. Separate figures pointed to a rebound in consumer sentiment while business confidence is holding up.
“Circumstances may change, of course, and the outlook is uncertain,” Bullock told lawmakers. “But based on what the board knows at present, it does not expect that it will be in a position to cut rates in the near term.”
That assessment is a key reason why the RBA is seen trailing major global counterparts when it comes to easing, setting Australia up as a potential outlier.
Economists at UBS AG described Bullock’s remarks and the subsequent Q&A as hawkish. The resilience of the labor market together with Friday’s testimony “supports our view that interest rates will remain higher for longer, at least relative to global trends, which are increasingly dovish,” they said.
The RBA has kept its policy rate steady since last November and remains in data-dependent mode, with its forecast showing inflation will only fall back within the 2-3% target next year. Bullock has expressed a willingness to be patient as she seeks to slow inflation without choking off economic growth.
“We have been trying to balance bringing inflation back down over a reasonable timeframe, without inflicting unnecessary damage on the labor market,” she said Friday. “And the board’s judgment to date has been that policy is currently sufficiently restrictive to do that.”
Bullock highlighted household consumption, residential construction, geopolitics and China’s economy as key sources of uncertainty.
Responding to questions about impending changes to the RBA’s structure, the governor said she would like legislation that would split the bank’s board into two new bodies to pass parliament. She reiterated that she’d prefer to have a bit of “continuity” in the composition of both the planned monetary policy committee and governance board.
The new two board structure was originally intended to be in place by mid-2024, but differences between the government and opposition has delayed passage of the bills.
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