EDITORIAL: RBA won’t rule anything out. Except for a rate cut

It’s Michele Bullock’s favourite line: “We’re not ruling anything in, or anything out”.

Her aversion to definitiveness is understandable in context. After all, it was her former boss Philip Lowe’s 2021 statement that rates would not rise until 2024 that was his professional undoing and the reason that Ms Bullock now holds the position of Reserve Bank governor.

So, Ms Bullock was happy to share with reporters that the RBA board had considered the case for a further interest rate hike at its two-day meeting this week. Ultimately, the decision was made that it wasn’t necessary to do so. Yet.

After all, they’re not ruling anything in, or anything out.

Except for a rate cut, that is.

That option was not even on the table.

It’s a brutal reality check for households holding their breath for relief from the punishing two-year tightening cycle which has drained savings accounts and piled on the pressure.

Ms Bullock said she had sympathy for the many Australian families struggling to meet their financial commitments, but the pain of unchecked inflation would be far greater than the pain caused by the highest interest rates in 13 years.

“I can’t tell (people) when we will bring interest rates down but I can say that my laser focus and the board’s laser focus is on bringing inflation down and that will help them,” Ms Bullock said. “That will really help them.

“I do understand that it affects different people in different ways (but) it is our only tool to bring inflation down.”

Sorry, not sorry.

That job of returning inflation to its target band of between 2 and 3 per cent has been harder by budgetary decisions taken by State and Federal governments, despite their treasurers’ assurances to the contrary.

There’s no escaping that the cost-of-living relief measures contained in those budgets have been inflationary, a fact acknowledged for the first time in the RBA board’s statement.

“Recent budget outcomes may also have an impact on demand, although federal and state energy rebates will temporarily reduce headline inflation,” the statement said.

“The economic outlook remains uncertain and recent data have demonstrated that the process of returning inflation to target is unlikely to be smooth.”

Rapid population growth fuelled by high post-pandemic migration too has had an impact, driving up both housing prices and aggregate demand.

So what’s the way out of all of this?

Ms Bullock said she wants to wait to see the “full picture” of inflation in the next quarterly data, due out late July.

Financial markets still say there’s some possibility of a rate cut this year, but the likelihood is fading fast.

Ms Bullock said it will be a “slow grind” to return inflation to the target band without plunging the nation off the cliff and into a recession.

The RBA predicts we won’t reach that milestone before the second half of 2025, meaning Australians will likely go to the polls before any rate relief arrives. And they won’t hesitate to punish the Government if they believe their policies have extended their financial suffering.