Under Fire, RBA's Bullock Stands Her Ground

Above: RBA Governor Bullock delivers a speech at the Anika Foundation.

The Governor of the Reserve Bank of Australia (RBA) said the central bank won't be pushed into cutting interest rates until it felt the right conditions had been met.

Michele Bullock told an audience at the Anika Foundation that interest rates will remain at these levels as the RBA remains alert to upside inflationary risks. Her message comes amidst growing political pressure to cut rates, with Australia's Treasurer Jim Chalmers saying on Monday that high interest rates were "smashing the economy".

The speech was cited as the key domestic event for the Australian Dollar this week, as any overtures to those wanting lower interest rates would have seen the currency come under pressure.

In the event, Bullock stood her ground. She was asked by a member of the press if she was "at war with the Treasurer", referencing a comment made by the leader of Australia's political opposition, to which she replied, "I wouldn't use that choice of words."

Instead, Bullock warned against cutting rates too soon as entrenched inflation would "eventually require disinflation, which can have long-lasting costs for households through higher unemployment."

She sees maintaining higher interest rates for longer as a less costly option than easing rates too early, as this would reignite inflationary pressures that will become increasingly difficult to douse.

Bullock added that "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."

The Australian Dollar was unmoved by Bullock's message, which suggests she successfully maintained the RBA's existing policy stance which puts it on course to be the last G10 central bank to begin an interest rate cutting cycle.

Money market pricing shows the markets are not fully priced for a 25 basis point cut from the RBA in 2025, with a cut only fully anticipated by Q1 of next year.

This can offer the Aussie Dollar support via the relative interest rate channel.