RBA Governor Michele Bullock refuses to answer investor’s most important question

Reserve Bank Governor Michele Bullock refused on Tuesday to answer the one big question dominating investors’ minds: will the Reserve Bank need to lift interest rates in 2026 to contain what might be an inflation rebound?

Instead, Ms Bullock chose Melbourne Cup Day to sit on the fence about the future of interest rates, while the central bank juggles the risk that rising unemployment and record mortgage debt will sap consumer confidence.

The central bank said the risks are in “both directions to the inflation and employment outlook” - leaving Ms Bullock wriggle room to tell the media and public not to bet heavily on a rate cut or hike over the next 12 months.

The governor argued this meant it was impossible to answer multiple questions about whether she may need to lift interest rates in 2026 or concede it made a mistake in lowering interest rates three times this year.

At a media conference in Sydney on Thursday afternoon, she said that the strong share market and historically low corporate bond yields suggest financial conditions are reasonably strong, while how much money people have to pay their mortgages suggests economic conditions are tough.

“It’s possible there are no more rate cuts, it’s possible there are more,” said Ms Bullock. “We didn’t go up as high (compared to other countries). It’s possible we might not have to come down as far.”

Murky economic outlook

After cutting interest rates to 3.6 per cent, the central bank’s updated forecasts predict inflation will not reach its 2.5 per cent target in 2026 or 2027. However, Governor Bullock denied it had given up on targeting 2.5 per cent in a post-pandemic world of higher money supply.

“Three per cent inflation is definitely not good enough for the board,” she said. “When you take those (updated) inflation forecasts at face value what that’s telling you is that it’s really an interesting question about whether there’s many more rate cuts to come.”

Peppered with questions about whether the central bank could lift interest rates in response to September quarter headline inflation that climbed to 3.2 per cent, Governor Bullock was resolute in declaring: “I don’t give forward guidance.”

She suggested inflation may have been driven by temporary factors such as energy, fuel, travel costs and council rates that may ease off over the next 12 months. “The board is going to be going meeting by meeting and using data to inform its outlook and if that is reasonable,” she said. “If it isn’t the board will change its mind.”

It is not just Governor Bullock who seems uncertain about the direction of rates. Market pricing expects one more interest rate cut around the middle of 2026, although there’s little conviction in this call as economists remain deeply divided.

Some, such as Judo Bank’s Warren Hogan, insist the RBA will need to concede it made a mistake and impose pain on home loan borrowers with multiple rate hikes in 2026, while others at AMP, ANZ and National Australia Bank still believe a slowing economy mean it will cut rates one more time next year.

Since closing at 9012.5 points on October 28, Australia’s benchmark share index, the S&P/ASX 200, has lost 2 per cent or nearly 200 points. Interest rate-sensitive tech and discretionary retail stocks have been among the big losers as investors sense the central bank is unlikely to offer corporates and consumers cheaper money anytime soon.

The dollar has gained around 2 per cent since October 29 as the prospect of higher-for-longer rates makes it more attractive.

If Ms Bullock raises rates over the next 12 months it will be an admission its monetary policy committee’s decision to cut interest rates three times in 2025 allowed the destructive effects of inflation to lower the real wealth of Australians.