Reserve Bank of Australia (RBA) Governor Michele Bullock has acknowledged that the central bank was too slow to raise interest rates when inflation began to rise. Simultaneously, another senior official indicated that the possibility of further multiple rate cuts this year is slim. This statement has sparked market attention regarding the future direction of monetary policy.
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02-22, 2025During a hearing before a Senate committee, Bullock stated that one of the reasons she and the board decided on Tuesday to lower the cash rate for the first time in over four years was to avoid a lagged reaction to the slowdown in inflation. She admitted, "The board didn't want to be slow to act, and arguably, we were slow to act on the way up."
Bullock explained, "We were not quick enough to react to the rise in inflation. I think the board is well aware that if we are going to start cutting rates, what we need to think about is not when we are already back within the target band, but when we are starting to get more confidence that we will get back within the target band."
Under the leadership of Bullock's predecessor, Philip Lowe, the Reserve Bank of Australia did not raise interest rates from the emergency low of 0.10% until May 2022. By that time, headline inflation had reached 5.1%, and core inflation had risen to 3.8%.
Although financial markets anticipate two more rate cuts by the end of this year, and the Reserve Bank of Australia has incorporated these assumptions into its forecasts, Deputy Governor Andrew Hauser stated that it is highly unlikely that the central bank will follow these predictions. He emphasized, "If interest rates were to evolve along that path, inflation would not return to the midpoint of the target range. We've not only not said that's our preferred path, but we've also said that if interest rates were to follow that path, we wouldn't achieve our objective."
In her opening remarks to the committee, Bullock stated that the Reserve Bank of Australia will work with the government to ensure that Australians who wish to continue using cash can continue to access it. "While the use of cash has declined in recent decades, it remains an important means of payment for many Australians," Bullock said. "Cash is used as a store of wealth, particularly in times of economic uncertainty, and can serve as a useful backup to electronic payment methods. The Reserve Bank of Australia is committed to supporting the Australian Government's policy objective of ensuring that cash remains a viable means of payment in Australia for those who want or need to use it."
Bullock's comments were made after the federal government proposed a bill in November mandating that businesses accept cash payments for essential goods. This followed the need for Armaguard, Australia's only cash distribution company, to receive a A$50 million support package from major businesses last year to survive. Bullock stated that the system still faces some issues. "While some progress has been made, there is still a lot of work to be done to establish a sustainable cash distribution model... This requires the cooperation of all industry participants, while taking into account the needs of the community," she said.
