RBA's Bullock Defends Hawkish Inflation Warnings

By James Glynn

SYDNEY--In a week where the Reserve Bank of Australia has been attacked for "smashing the economy" with high interest rates, Governor Michele Bullock on Thursday reiterated and defended the central bank's hawkish narrative by once again ruling out an easing in policy settings over the near-term.

Bullock used a keynote speech at a luncheon for money market and banking sector participants to warn that core inflation remains high, having fallen little over the last year, while adding that the RBA remains vigilant to further increases.

"It is premature to be thinking about rate cuts. Circumstances may change, of course, and if economic conditions don't evolve as expected, the board will respond accordingly," Bullock told an annual meeting of the Anika Foundation, a charity supported by financial markets.

"But if the economy evolves broadly as anticipated, the board does not expect that it will be in a position to cut rates in the near term," she added.

Bullock's speech follows comments by Treasurer Jim Chalmers this week saying that elevated interest rates are crunching the economy, with second-quarter GDP growth data on Wednesday showing the weakest activity since the early 1990s, outside of the Covid-19 pandemic.

The data also showed household spending has fallen sharply, reflecting conditions last seen during the global financial crisis.

Bullock's strong assertion of the bank's policy position will be viewed as a strong defense of its independence, and its ongoing determination to lower inflation over time.

Still, the political heat is expected to be turned up on the RBA to change its tune over coming months, with a federal election expected in early 2025.

While the commodity-rich economy has so far avoided a recession, if GDP growth continues to weaken from the 0.2% quarterly pace seen in the second quarter, the risks of a sharper downturn that brings with it higher unemployment remains high.

Bullock said the RBA continues to balance its goal of reducing inflation, which in underlying terms rose by 3.9% on year in the second quarter, with keeping the job market as close to full employment as it can.

So far it has managed to do that, but with the economy slowing and the RBA keeping the official cash rate elevated at 4.35%, the risks of failure are also building.

Bullock concluded her speech by saying that while the RBA is tasked with lowering inflation and defending employment, the inflation objective takes precedence.

"Ultimately, though, it is crucial to remember that our full employment goal is not served by letting inflation stay above target indefinitely," she said.

Write to James Glynn at james.glynn@wsj.com