Bullock hints at no rate cut in 2025

Reserve Bank of Australia (RBA) governor Michele Bullock has reaffirmed the central bank's stance that interest rates are likely to stay higher for longer as sticky inflation persists.

Speaking at a Centre of Economic Development (CEDA) dinner, Bullock said she is regularly questioned about the bank's aggressive interest rate policy.

"I am often asked, 'why aren't we cutting rates yet in Australia?'," she said.

"While monetary policy is central to the RBA's mandate, our responsibilities encompass a broader range of activities that support the overall functioning of the Australian economy."

Bullock acknowledged that inflation has been falling - headline inflation has eased to 2.8% over the year to September, down from 5.4% in 2023 - but said that the bank is waiting to see whether inflation will stay within the 2% to 3% target range.

"Despite the decline there is still some way to go to return inflation sustainably within our 2% to 3% per cent target range," she said.

"The word 'sustainably' is important because it recognises that we need to look through temporary factors that influence the headline inflation rate from time to time. Indeed, over the past year, part of the decline in headline inflation has been due to temporary factors such as electricity rebates and declining fuel prices.

"While these temporary factors have undoubtedly helped many Australians, our approach is to look through them to some extent to better understand where inflation will settle in the medium term."

Bullock said restrictive monetary policy settings will remain in place until the RBA board is "confident" inflation is on track to return sustainably within the target range.

She added that the RBA's forecasts for when this target will be met is in 2026.

"As it currently stands, underlying inflation is still too high to be considering lowering the cash rate target in the near term," she said.

"When setting policy, the board aims to ensure that financial conditions are restrictive enough until it is confident that inflation is moving sustainably back to target. This overarching approach is similar to that used at other central banks in advanced economies, where we all have flexible inflation targeting frameworks."