Jim Chalmers talks up ‘welcome’ news in latest RBA interest rate decision

Treasurer Jim Chalmers says Australia has made “substantial progress” in the fight against inflation, after the Reserve Bank kept clear of a hike and opted to keep interest rates steady at a 12-year high on Tuesday.

The cash rate remains at 4.35 per cent, unchanged since last November, with the RBA noting that while inflation was lower than its 2022 peak, it was proving difficult to return it to the bank’s two-to-three per cent target.

The RBA forecasts that now won’t happen until 2026, but has remained steadfast in its determination to do so, saying “sustainably returning inflation to target within a reasonable timeframe reflects the Board’s highest priority”.

While chances of a pre-election rate cut are quickly dissipating, the RBA board did not consider hiking rates this time.

Acknowledging that interest rates were slowing the economy “quite dramatically”, Mr Chalmers said there was proof the Government had been helping the Bank in the shared goal of fighting inflation.

“And when it comes to the Reserve Bank and the Government, we have the same objective when it comes to getting on top of inflation without ignoring the risks to growth in our economy,” Mr Chalmers said.

“Now, the fact that interest rates haven’t gone up for the best part of the year, I think is an indication that we have been making welcome and encouraging progress in the fight against inflation.

“It’s still higher than we’d like, but it is definitely trending downwards.”

Shadow treasurer Angus Taylor took to social media to question whether Mr Chalmers was “so out of touch that he thinks Australians should thank him for keeping interest rates higher for longer”.

RBA governor Michele Bullock revealed at her post-meeting press conference that the board did not explicitly consider raising rates during this meeting.

“The way we framed the discussion really was around what had changed since August, and what would we need to see to go either a raise in interest rates or a lowering in interest rates?” she said.

As for when mortgage holders might expect a rate cut, Ms Bullock reiterated that was unlikely to happen anytime soon.

In August, Ms Bullock warned no rate cuts were likely on this side of Christmas, and on Tuesday said the data since then had “not materially altered” that view.

“We’ve seen the June quarter national accounts, two sets of labor force figures and one monthly CPI indicator,” she said.

“We’ve considered in detail whether our current settings are sufficiently restrictive, and judged that based on what we know at the moment, rates will remain on hold for the time being.”

Meanwhile, the Greens used the latest decision to double down in their calls for the Government to override the RBA, as Mr Chalmers defended the bank’s independence and said he wouldn’t “second guess” the institution.

The Greens have threatened to keep Labor’s RBA reforms — which have been rejected by the Coalition — hostage unless the bank lowers rates, or the Government intervenes.

Greens senator Nick McKim said Mr Chalmers should “finally use powers available to him to bring rates down”.

“Dr Chalmers has the power to bring relief to those who badly need it — he just needs to show some courage,” he said.

“Labor is watching the Reserve Bank drive people to the wall and doing nothing.”

In response, Mr Chalmers said the Greens and the Coalition were “indistinguishable when it comes to economic irresponsibility.”

“It’s been clear from the beginning that there is a risk that the parties to the left and right of us will play politics with the Reserve Bank. We don’t intend to do that,” he said.

Under the proposed reforms, two boards would be created to deal with monetary policy and governance separately.

Asked about the parliamentary stalemate, Ms Bullock said she’d keep out of the politics, but that she would like some help to run the institution.

“We operate the cash distribution, the wholesale cash distribution system. We have a massive IT operation. All of these things are really important functions of the bank,” she said.

“And at the moment I’m the sole accountable authority for those. So I think that it would be good for us to get some (new) structure.”