RBA governor Michele Bullock acknowledges 4.1 per cent cash rate is small relief

Australian Community Media

It's the first time since 2020 that the RBA has not raised the cash rate, effectively reversing the raise from November 2023.

Transcript

00:00The board decided today to cut the cash rate by 25 basis points to 4.1 percent.

00:06The cash rate has been at 4.35 percent since November 2023. At that time, in November 23,

00:14the upside risks to inflation had increased, so the board decided to raise the cash rate to 4.35

00:21from 4.1 percent to address those upside risks. Since then, inflation has fallen and recent data

00:29suggest it's eased a bit more than expected. Growth in private demand has also been quite weak

00:34and wage pressures have eased. The board therefore judged that it was appropriate to remove the

00:40cautionary raise undertaken in 2023. I've said many times that we need to see inflation moving

00:47sustainably towards our two to three percent target band before we ease rates. In December,

00:53we said we'd gain confidence that things were headed in the right direction.

00:58Now we're at a point where underlying inflation is at 3.2 percent and headline inflation is 2.4

01:03percent. Inflation has eased over the past three quarters and in the most recent quarter a bit more

01:09than our forecasts had anticipated. This has increased our confidence further. It's clear

01:16that higher interest rates have been working as anticipated, restricting economic activity and

01:21putting downward pressure on inflation. The board judges it's time to reduce a little bit of that

01:27restrictiveness but we cannot declare victory on inflation just yet. It is not good enough for

01:33inflation to be back in the target range temporarily. The board needs to be confident

01:37that it is returning to the target range sustainably. One of the big questions we're

01:43grappling with now that inflation is easing is how the labour market is reacting. The board's

01:48strategy has been to bring inflation down while preserving the gains in the labour market.

01:54The judgment was that we could achieve this with a gradual easing in the labour market.

01:59But the strength of the jobs market has been surprising. Many indicators suggest that the

02:04labour market is tight and on some measures tightening further. While this is good news

02:09for job seekers, the board remains alert to the possibility that it is signalling a bit more

02:15strength in the economy which could delay or stall the disinflation process. There's also a

02:21lot of uncertainty around the global outlook at the moment. One of the things we're cautious about

02:26is the possibility that policy unpredictability could lead to slower growth. But at the moment

02:32it's too soon to tell. For these reasons I want to be very clear that today's decision does not

02:39imply that further rate cuts along the lines suggested by the market are coming.

02:44As I noted, we've removed the cautionary increase that we did in November 23

02:50to a level that we still see as restrictive. But the board needs more data and evidence that

02:56inflation is continuing to decline before making decisions about the future path of interest rates.

03:02The board is very alert to upside risks that could derail the deflationary process.

03:08I know that some other central banks have cut interest rates quite sharply over the past year,

03:12but we have taken a different strategy to most. Our policy rate was not raised as much as many

03:17countries overseas. We judged that while inflation expectations remained anchored,

03:23we could take a bit longer to bring inflation back to the target band, but we could keep

03:27unemployment lower. We can be happy with the progress we've made, but we have to be careful

03:33not to get ahead of ourselves. The truth is that some inflation pressures remain

03:38and cost of living pressures are still front of mind for many Australians.

03:43The board is conscious that households with mortgages have had to adjust following interest

03:47rate increases since the pandemic, and the impact of high inflation over the past couple of years

03:52has permanently increased the price of goods and services. That's hurt everyone, but particularly

03:58those on lower incomes and the more vulnerable. The board will continue to look to the data

04:03to see if the economy and inflation continue to evolve as expected.

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