RBA boss feels pain
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RBA Governor Michele Bullock says persistently high inflation continues to strain Australian households.
The Reserve Bank of Australia (RBA) Governor has detailed the ongoing challenges faced by Australian households as inflationary pressures persist and monetary policy remains restrictive.
Speaking at the Anika Foundation in Sydney, Bullock said the RBA is committed to bringing inflation down, warning that high inflation disproportionately harms vulnerable groups, while acknowledging the burden placed on mortgage holders by high interest rates.
Bullock confirmed that the RBA Board had left the cash rate unchanged at 4.35 per cent in its August meeting.
While inflation has moderated from its peak, it remains above the target range of 2 to 3 per cent, with underlying inflation at 3.9 per cent in June.
The Board aims to bring inflation within the target range by the end of 2025 and stabilise it by 2026, a slower return than previously forecast.
“We are very conscious of the hardship that restrictive monetary policy is causing households and businesses,” Bullock said.
“High inflation hurts everyone, and especially the most vulnerable.”
One of the key points in her speech was the warning that some mortgage holders may be forced to sell their homes due to financial pressures.
Bullock revealed that 5 per cent of owner-occupiers with variable-rate mortgages are in a “particularly challenging situation”, where their essential spending and mortgage repayments exceed their income.
These borrowers, many of whom are younger or lower-income, face “painful adjustments”, including cutting back on non-essential spending, tapping into savings, or working extra hours.
In some cases, homeowners may have no choice but to sell.
“Some may ultimately make the difficult decision to sell their homes,” she said, acknowledging that the impact is severe for those affected.
Despite the economic strain, Bullock maintained that it is too early to discuss rate cuts, signalling that restrictive monetary policy would continue.
“It is premature to be thinking about rate cuts,” she said, clarifying that the central forecast is based on potential rate reductions starting early next year, though this is not guaranteed.
Bullock also addressed the broader inflationary landscape, with housing and services inflation being key contributors to current price pressures.
Rent costs, driven by demand for housing and limited supply, continue to rise, and Bullock predicted that this would not ease in the short term.
Construction costs and labour shortages are further adding to inflation in the housing sector, while domestic market services, including hospitality and recreational activities, also remain elevated.
The economic outlook remains uncertain, Bullock conceded, and the RBA will continue to monitor inflationary risks.
However, she stressed the importance of maintaining a focus on both inflation and employment objectives, seeking a balance between reducing inflation and preserving the gains made in the labour market.
Looking ahead, the RBA will release its next Financial Stability Review in September, which will provide a detailed assessment of household and business finances, including the impact of recent monetary policy.