Another rate hike on the cards, RBA chief Michele Bullock warns because of weak productivity
Reserve Bank governor Michele Bullock has explained why borrowers could face another rate hike.
Reserve Bank of Australia governor Michele Bullock has warned her monetary policy board may have to raise interest rates again because weak productivity is keeping inflation high.
Australia’s most powerful central banker has told a Sydney luncheon the RBA’s three rate hikes in 2026 so far may not be enough to get inflation back to target.
“One thing monetary policy can’t do, however, is address the economy’s slow productivity growth,” she told an Anika Foundation fundraiser on Tuesday.
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By continuing you agree to our Terms and Privacy Policy.“While this persists, the ability of the economy to grow without generating inflation is constrained, and Australians will continue to experience limited growth in real wages.”
Ms Bullock suggested another rate rise, that would take the cash rate to a 15-year high of 4.6 per cent, may be needed to bring down headline inflation now at 4 per cent, which is well above the central bank’s 2-3 per cent target.
“In these circumstances, the best contribution monetary policy can make is to maintain low and stable inflation and support sustainable full employment,” she said.
“The board is prepared to act as required to achieve its mandate, including by increasing the cash rate further if needed.”
The RBA’s three rate rises in February, March and May are expected to be insufficient to tackle underlying of 3.6 per cent which is also above target.
“The full effects of increases in the cash rate from earlier in the year will take time to materialise,” she said.
“And even if the renewed disruption to oil supply abates quickly, underlying inflation is still expected to be higher as fuel price rises flow through to other prices.”
The RBA chief is less worried about falls in Sydney and Melbourne house prices after this year’s rate rises undid the effects of last year’s relief.
“Furthermore, the most recent data suggest that, notwithstanding the price falls, negative equity remains very limited, affecting less than one per cent of borrowers,” she said.
“Of that small group, our estimates suggest that only a small share of borrowers are facing severe difficulty with their loan repayments.
“While we expect housing prices to be affected when interest rates rise, monetary policy doesn’t target housing prices. “
