‘Smash the economy’: RBA Governor’s cheeky jab at Treasurer Jim Chalmers

RBA Governor Michele Bullock has taken a thinly veiled shot at the government after yesterday’s decision to keep interest rates on hold.

Reserve Bank Governor Michele Bullock took a thinly veiled shot at the government after yesterday’s decision to keep interest rates on hold again, in the form of a pointed callback to criticism from Treasurer Jim Chalmers.

Addressing the media after the RBA board’s decision to keep the cash rate at 4.35 per cent, Ms Bullock alluded to the disagreement, among economists, about her strategy.

“(There) could be an alternative strategy,” she said.

“Which is go up really hard, smash the economy, to use a term, and then be prepared to come back down very quickly.”

Three weeks ago, Dr Chalmers accused the Reserve Bank of “smashing the economy” with its interest rate hikes.

“With all this global uncertainty, on top of the impact of rate rises, which are smashing the economy, it would be no surprise at all if the national accounts on Wednesday show growth is soft and subdued,” he said before the release of weak growth data.

Clearly, Ms Bullock noticed the Treasurer’s turn of phrase.

Michele Bullock. Picture: John Appleyard/NewsWire

Jim Chalmers. Picture: Glenn Campbell/NewsWire

With its decision yesterday, which marked the seventh straight meeting without interest rates moving, the RBA suggested Australians were unlikely to see a reprieve in interest rates until inflation returns to “sustainable” levels.

Referring to the underlying inflation, or the trimmed mean, Ms Bullock said the board would not cut the official cash rate until that all-important metric was within the target range, which is between 2 to 3 per cent.

“The board needs to be confident that inflation is moving sustainably towards the target before any decisions are made about a reduction in interest rates,” said Ms Bullock.

“We really need to see progress on underlying inflation coming back down toward the target.”

Michele Bullock. Picture: John Appleyard/NewsWire

In her remarks to the media, she flagged this would not be anytime soon, with inflation figures for the month of July showing underlying inflation was at 3.7 per cent.

“Progress in getting underlying inflation down has slowed, and it’s likely to have remained slow in the September quarter,” she said.

The RBA’s own forecasts say underlying inflation will not reach the target range until late 2025, and won’t hit the midpoint until late 2026.

“If tomorrow we get an inflation number which has got a two in front of it, so it’s back in the band, it doesn’t mean we’ve got inflation under control,” she said, referring to the scheduled release of the official inflation rate from the Australian Bureau of Statistics later today.

“It doesn’t mean that inflation is sustainably back within the band. It just means it’s back there at the moment.”

Ms Bullock’s words signalled to stressed mortgage payers that they will have to wait for relief, with Betashares chief economist David Bassanese not forecasting a cut until the board’s first meeting in 2025 in February.

“With the labour market still considered tight, and aggregate consumer spending holding up due to the influx of foreign students and tourists, it’s a forlorn hope to expect the RBA to provide interest rate relief anytime soon,” he said.

However, he said the RBA “need not and likely won’t wait” until underlying inflation reaches its target band, pointing towards the US Federal Reserve’s recent decision to cut its cash rate by a whopping 50 basis points.

Ms Bassanese also said it was worth noting that US interest rates peaked higher than Australia’s, with its underlying inflation also now falling “considerably further”.

Three out of the big four banks are predicting the cash rate will remain at 4.35 per cent until at least February of next year.

Westpac and ANZ have tipped a February cut, with NAB pushing the decision out to May.

CBA is the outlier, predicting rates to come down at the RBA’s pre-Christmas meeting.

Ms Bullock however, has been less forthcoming on putting forward a specific date.

While she acknowledged this would not be welcome news to struggling households, she reiterated the RBA’s need to lower inflation and not risk rising unemployment and economic stagnation.

“All I would do is reiterate … that we are look at the data and we’re not ruling out we might raise, we’re not ruling out we might cut,” she said.

“When the time comes, then we’ll have a discussion about how urgent (we move) in one direction or the other … and how big those moves will be.”

– with NewsWire