RBA Governor Michele Bullock reinforced the hawkish stance at a Senate estimates hearing today, making clear that further tightening remains on the table. “If we need to go up further because inflation is entrenched, the board will do so,” she said, stressing that returning inflation to target remains the central bank’s primary mandate.
Bullock said inflation running “with a three in front of it” is unacceptable. She noted that, at present, total demand is judged to be exceeding the economy’s capacity to supply, helping to explain ongoing inflation pressures. At the same time, she struck a more balanced tone on growth, pointing to the labour market as a key “positive”. While productivity remains weak and limits how fast the economy can expand, employment conditions are holding up. “We’re in this position because the economy is actually doing okay,” Bullock said,.
The RBA raised the cash rate by 25 bps last week to 3.85%, reversing one of last year’s cuts, after underlying inflation accelerated to 3.4% in the latest quarter. With forecasts pointing to inflation reaching 3.7% this year, markets now price roughly a 75% chance of another hike to 4.10% at the May meeting.
