Summary of the RBA governor's comments on interest rate reduction and factors that may lead to an increase

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The Reserve Bank of Australia (RBA) governor Michele Bullock has told Australians “we cannot declare victory yet,” in the fight against inflation, while offering a message to people struggling with the bank’s “restrictive” monetary policy.

Bullock spoke to reporters in Sydney following the central bank’s decision to from 4.35 per cent to 4.1 per cent, bringing an end to 15 months of keeping it on hold.

In its statement the bank said the rate of inflation had lowered “faster than expected,” prompting the unanimous decision to make the first interest rate cut since 2020.

All of Australia’s four largest banks quickly announced they would pass the cut on to customers in full.

Bullock was asked by a reporter whether she receives letters from Australians struggling with their finances, as her predecessor Philip Lowe had mentioned.

Source: SBS News

She said she does get similar messages, adding: “My message has been in the past and continues to be — I understand that you are hurting, and I understand that mortgage rates have increased a lot and you’re finding that hitting your disposal income.”

Bullock said the thing that was “really hurting” Australians is inflation.

“If we don’t get inflation down, interest rates won’t come down, and you’ll be stuck with inflation and high interest rates. So, we have to be patient. I understand it hurts. But it’s really important that we get inflation down”.

The RBA’s target for underlying inflation is between 2 and 3 per cent.

A graphic depicting How many people own homes in Australia

Source: SBS News

Underlying inflation for the December quarter eased to 3.2 per cent, the lowest rate since late 2021, according to the Australian Bureau of Statistics (ABS). It was at 3.6 per cent in the previous quarter.

The RBA uses the trimmed mean — which removes the biggest price swings — to measure underlying inflation. It grew 0.5 per cent in the December quarter, the ABS said, which was one of the smallest increases since November 2020.

What could spark another rate rise?

Bullock said she could not say that the RBA was “one and done” when it comes to interest rate decreases.

“I can’t say one and done. We have done one, we have removed a bit of restrictiveness, we’re still restrictive, and we’re waiting for more evidence we’re getting inflation sustainably back in the band before we’re willing to move.”

She was then asked about the factors that would prompt the RBA board to raise interest rates again.

Bullock said this might happen if “inflation reversed course” and started to increase.

“Now, what we’ve observed from overseas, we have observed it a bit here as well, it can be bumpy. It’s not a smooth ride,” she said.

A table displaying monthly savings for homeowners when RBA cuts rates

Source: SBS News

Bullock said more information on inflation will be revealed in data in the next few months, which includes “volatile quarterly numbers”.

“What we’ll be looking for is continued disinflation in those. If that starts to reverse course, in a trend sense, we start to see some of the easing in prices start going back up again, that will be something the board will seriously need to consider.”

Treasurer Jim Chalmers said the rate cut was a “welcome step” for millions of Australians.

“This is the rate relief Australians need and deserve.”