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While not explicitly mentioned in the Statement by the Reserve Bank following the June cash rate decision, Reserve Bank of Australia (RBA) governor Michele Bullock confirmed that rate hikes were still on the table this month.
“Yes, the board did discuss the case for increasing interest rates at this meeting,” Bullock said during the post-meeting press conference.
“In the end, it decided that its current strategy of staying the course and trying to bring inflation back down by bringing supply back to demand was the right way to go.”
When asked whether or not hiking rates would risk knocking the RBA off its narrow path, Bullock said: “That would be the decision we’d be taking if we were raising interest rates.
“We’d be making a decision about whether or not we really needed a higher rate to bring inflation back down in a more timely fashion.
“Though the narrow path point is about not trying to knock us off that, and we are really, as I’ve said, trying to bring the level of demand back down to the level of supply so that there aren’t those inflationary pressures in the economy. They’re aiming not to do that.”
Bullock also confirmed that a rate cut was not considered during the June meeting.
“No, the case for a rate cut was not considered, and I think I should say, we’re not ruling anything in or anything out. At the moment … I wouldn’t say the case for a rate rise is increasing,” Bullock said.
“What I would say, and I think we tried to reflect this in the statement, is that there’s been a few things that [has made] the board alert to the upside risk.
“They are a bit more focused on [the upside risks] and I think that reflects the fact that if it looks like inflation is not coming sustainably back to the band within a reasonable amount of time, that just increases the risks that inflation expectations will adjust, and that’ll make it harder to get inflation down in the future.”
Bullock emphasised that she was conscious that higher interest rates are “hurting particular sectors of the economy more than others”.
“The interest rate is the only tool we have, and it’s a blunt instrument. I do understand that it affects different people in different ways, [but] it is the only tool to bring inflation down,” Bullock said
“I’ve said a number of times before that interest rates are only part of what’s hurting them, but inflation is really hurting them.”
The governor stated while she cannot tell struggling businesses and consumers when the board will bring interest rates down, she said that it is her and the board’s “laser focus” on bringing inflation down.
[RELATED: RBA calls June cash rate]
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