RBA Remains Cautious Despite Economic Slowdown

2

The information on this website is general in nature and does not take into account your objectives, financial situation, or needs. Consider seeking personal advice from a licensed adviser before acting on any information.

Though the economy is experiencing a downturn, RBA Governor Michele Bullock emphasizes that the demand for goods and services still outstrips supply capabilities.

"It's understandable that people think a slower economy should lead to rate cuts, but we need tangible inflation improvement before making such a move," Bullock stated during her speech on Thursday.

This comes in the wake of a modest 0.2% economic growth in the June quarter, with an annual increase holding at 1%, marking the lowest since the 1991 recession outside the pandemic period.

The slowdown was anticipated as a consequence of maintained high-interest rates aimed at dampening demand to curb inflation.

Despite slowing growth, Bullock pointed out that demand remains high partly because post-pandemic resurgence has sustained some strength in the economy.

She also mentioned the ongoing underperformance on the supply side, particularly in productivity growth.

"It's a matter of growth rates versus levels," she explained at the Anika Foundation Fundraising Lunch, indicating that inflation persists due to demand remaining higher than supply capabilities.

This protracted wait for interest rate cuts is challenging for the federal government, which faces scrutiny over its budgetary decisions and their impact on inflation.

Bullock acknowledged that both federal and state governments are wrestling with inflation as it directly affects their regions' residents.

When asked if Treasurer Jim Chalmers was shifting blame to the RBA, Bullock refrained from commenting directly but clarified both were committed to their roles.

The opposition has leveraged the national accounts to criticize the government, with Shadow Treasurer Angus Taylor suggesting a conflict between government spending and RBA's inflation control measures.

In defense, Finance Minister Katy Gallagher highlighted that the government's expenditure was strategically targeted to support the economy without exacerbating inflation;

"Had the government not provided necessary aid during this period, the economic figures would have been worse," Gallagher told ABC TV on Thursday.

Bullock further dedicated significant portions of her speech to the hazards posed by stubborn high inflation.

She cautioned that although inflation expectations are stable, this stability is not guaranteed. A scenario of expected consistent price rises could necessitate further interest rate hikes.

"In that case, we would need to throttle the economy more, leading to higher unemployment and potential recession," she warned.

Prolonged inflation risks pushing more borrowers, particularly those with lower incomes, into mortgage stress and potentially forcing home sales.

"High inflation is why there is so much cost of living discussion - it adversely affects everyone, especially the most vulnerable,” Bullock concluded.

Published:Friday, 6th Sep 2024
Source: Paige Estritori

Please Note: If this information affects you, seek advice from a licensed professional.

Share this news item:

Finance News

Clear

Australian Mortgage Market Reaches Record $2.41 Trillion Amid Rising Property Prices

11 Jan 2026: Paige Estritori

In November 2025, Australia's residential mortgage market achieved a new milestone, with authorised deposit-taking institutions (ADIs) collectively holding $2.41 trillion in home loans. This represents a 0.67% increase over the month and a 6.36% rise over the preceding year, as reported by the Australian Prudential Regulation Authority (APRA). - read more

APRA Implements Cap on High Debt-to-Income Home Loans to Safeguard Financial Stability

11 Jan 2026: Paige Estritori

The Australian Prudential Regulation Authority (APRA) has announced a significant policy change aimed at mitigating emerging risks in the housing market. Effective February 2026, APRA will impose a cap on high debt-to-income (DTI) home loans, limiting banks to issuing no more than 20% of new home loans with DTI ratios of six times or higher. This measure applies to both owner-occupier and investor loans, excluding new housing developments. - read more

Australian Home Prices Hit Record Highs in December 2025

11 Jan 2026: Paige Estritori

In December 2025, Australia's housing market reached a new peak, with the national median home price climbing to $880,000, reflecting an 8.8% increase compared to the previous year. This growth was driven by varying performances across different regions, with regional areas outperforming capital cities. - read more

Australian Home Loans Hit Record High as Investor Activity Soars

03 Jan 2026: Paige Estritori

In the third quarter of 2025, the Australian mortgage market experienced unprecedented growth, with new home loans totaling $191.1 billion. This marks an $8.3 billion increase from the previous quarter, setting a new record in the housing finance sector. - read more

Major Banks Raise Fixed Mortgage Rates After RBA Holds Cash Rate

03 Jan 2026: Paige Estritori

Following the Reserve Bank of Australia's (RBA) decision to maintain the cash rate at 3.60%, major banks have adjusted their fixed mortgage rates. Westpac has increased its fixed home loan rates by up to 35 basis points, with the lowest standard fixed rate now at 5.79% per annum. This marks a significant rise from 5.54% earlier in the week and 5.19% in early November. - read more

Click for more Finance News