RBA Chief Says Rate Cuts Are Premature
(RTTNews) - Reserve Bank of Australia Governor Michele Bullock said it is premature to think about interest rate cuts and the highest priority is to bring inflation sustainably towards the target.
At the Anika Foundation, Bullock reiterated that the bank remains vigilant to upside risks to inflation and the monetary policy needs to remain sufficiently restrictive.
"If economic conditions don't evolve as expected, the Board will respond accordingly," she said. "But if the economy evolves broadly as anticipated, the Board does not expect that it will be in a position to cut rates in the near term," she added.
At the August meeting, the RBA had left its interest rate unchanged at a 12-year high for the sixth consecutive meeting. The board concluded that it would be premature to loosen the policy ahead of completing the job of getting inflation down.
Bullock observed if high inflation becomes entrenched in the expectations of firms and households it would be more difficult and costly to reduce.
And if businesses and workers come to expect that prices and wages will continue rising quickly, this adds to inflationary pressures, requiring even higher interest rates to bring inflation down.
"Ultimately, we would need to slow the economy down by more, which would result in a larger rise in unemployment and higher risk of recession," she noted.
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