RBA: High Inflation More Damaging Than Restrictive Rates, No Easing “Near Term”

RBA Governor has stuck to her view that it is “premature to be thinking about rate cuts” despite Treasurer Chalmers saying that current rates were “smashing the economy”, which she didn’t comment on. Her tone was unchanged from the August 6 meeting and press conference that underlying inflation is moderating slower than the Board expected and its priority remains bringing it down while preserving job gains, as it hurts everyone and disproportionately those on low incomes.

• Board needs to see inflation come down to be able to consider rate cuts and may need to increase the “restrictiveness” of monetary policy if it doesn’t, which would slow the economy more and risk jobs.
• Bullock reiterated why high inflation is harmful to everyone and observed that people had forgotten how bad inflation can be. It is high inflation that is hurting people more so than rates. She also noted that allowing inflation to remain above target indefinitely would make the full employment goal harder to achieve.
• She explained that the level of demand continues to exceed supply due to strong growth post-Covid while the supply side has struggled and continues to require a pickup in productivity. This is causing capacity pressures, which some sectors continue to report.
• Bullock believes that governments are focused on bringing inflation down. Government spending is not the RBA’s main concern but if private consumption doesn’t recover as expected then that will be an important piece of information. The Board looks at the economy broadly and not just one data point.
• 5% of borrowers are facing challenging circumstances with a cash shortfall, which is not large enough to destabilise the financial system but needs to be monitored.