Reserve Bank governor Michele Bullock bored by questioning on government spending, inflation

Reserve Bank chief Michele Bullock shut down questioning at a parliamentary hearing before being accused of acting like a social media influencer.

During a tense exchange with Liberal senator Jane Hume, she became frustrated, sighing when asked if higher government spending, as a proportion of the economy, was making inflation higher than otherwise.

“Look, I really don’t think I’ve got anything more to add on this,” she told the Senate economics committee on Thursday morning.

“I’ve answered this question all last week. I answered at the press conference, I answered it at House of Reps on a multitude of occasions.”

The Canberra clash intensified near the end of Senator Hume’s allocated 15-minute slot.

“I really feel that I’m answering the same question over and over again,” Ms Bullock said.

Senator Hume took issue with the RBA governor’s complaint, likening her to a social media influencer.

“I understand you must feel that, governor, but it’s because we need to be able to understand what it is that’s driving the decision - you know that Australians are very disappointed to find that there is a 13th interest rate rise under this government,” she said.

“People were hanging on your words like some sort of internet influencer.”

Australia’s chief central banker shot back that “it’s taking too long to get inflation back down”.

“I understand people are disappointed with the interest rate rise but it would not be appropriate in the circumstances we’ve got to not take that action because inflation is bad for everyone,” she said.

But Ms Bullock admitted government spending influenced interest rate decisions because it added to total demand for goods and services.

“We look at aggregate demand, incorporating public and private and we take public as given, including public spending, and we set interest rates accordingly,” she said.

When it came to updated RBA forecasts of inflation soaring to 4.2 per cent by June this year, Ms Bullock said surging private demand and not government spending was the culprit - echoing Treasurer Jim Chalmers’ argument that the Federal Government isn’t to blame.

“The key difference there is not fiscal policy, it’s pretty much the same as it was in November,” she said. “The key difference is private demand.”

Inflation was at 3.2 per cent in August, a level above the RBA’s 2-3 per cent annual target, when it cut rates for the third time.

But it climbed to 3.6 per cent by September.

“We were sounding the alarm back in September,” she said, as a Parliament House division bell rang.

Headline inflation climbed back to 3.8 per cent at the end of last year, leading to February’s 25 basis point hike that took the cash rate to 3.85 per cent.

Financial markets are expecting a follow-up rate rise in May.

The RBA is also predicting very weak economic growth of 1.6 per cent in 2026-27 and 2027-28, which would be the worst expansion over two financial years since the early 1990s recession.

“Unless we can improve productivity, we’re going to find it hard to grow much more than 2 per cent a year without having inflationary issues,” Ms Bullock said.

Housing investor warning

Ms Bullock also warned about the dangers of investors pulling out of an overheating property market, with Labor hinting at revisiting the 50 per cent capital gains tax discount in the upcoming May Budget.

“That potentially might have financial stability implications if the cycle turns, the investors pull out, that exacerbates the downturn and that might have implications for other borrowers,” she said.

Last year’s three rate cuts - in February, May and August - had coincided with a 31.8 per cent annual increase in the value of new property investor loans, Australian Bureau of Statistics lending finance data showed.

Investors last year also made up 39 per cent of new players in the property market, an eight-year high.

“It started to pick up before interest rates came down, so it was probably anticipation of lower interest rates,” Ms Bullock said in response to Greens senator Nick McKim.

Assistant governor Christopher Kent added some investors with loan pre-approval may have brought forward their purchases to beat the October 1 start of the 5 per cent deposit scheme for all first-home buyers.

“They might think, ‘If I can move a bit faster’, at the margin, ‘I’ll come in earlier’,” he said.