Reserve Bank’s Michele Bullock to again deny borrowers rate cuts

Despite the world’s most powerful central bank delivering a super-sized cut and the likelihood of local inflation falling to a three-year low, economists expect no change to the cash rate.

Reserve Bank governor Michele Bullock. Picture: Max Mason-Hubers / NewsWire

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Reserve Bank governor Michele Bullock is set to again deny households interest rate relief, despite the world’s most powerful central bank delivering a super-sized cut to borrowing costs and the likelihood new figures will reveal local inflation fell to a three-year low in August.

With the central bank board convening in Sydney for its two-day meeting, economists and investors expect the RBA will hold the official cash rate steady at 4.35 per cent on Tuesday, unchanged since November, as a resilient jobs market and robust demand risk delaying the return of core inflation to target in a reasonable time.

Speaking ahead of Tuesday’s interest rate decision, Anthony Albanese was adamant the government had played its part in combating persistent price pressures.

“What we have done is to halve inflation,” the Prime Minister told reporters in Canberra, while announcing a regulatory crackdown on major supermarkets after the competition watchdog launched a probe into the pricing practices of Coles and Woolworths.

After the US Federal Reserve last week joined a host of peer central banks in lowering borrowing costs, reducing its key benchmark by a half percentage point, Barrenjoey chief economist Jo Masters said Ms Bullock had a growing “communication challenge” to explain why it was too early to press ahead with rate cuts.

“It’s getting harder, not easier – you’ve obviously had this cut from the US Fed, and so a lot of comparisons are being made that if everyone else is cutting, why aren’t we?” Ms Masters said, adding that the RBA would likely warn that rates could push higher still.

“The statement and the press conference afterwards with the governor will continue to sound quite hawkish … they will repeat that if we don’t make further progress on inflation, we will do what’s necessary, and that might require higher rates.”

Also testing the RBA’s nerve will be the release of monthly inflation data, due on Wednesday, which analysts expect will show the headline inflation rate decelerating sharply to just 2.7 per cent in the 12 months to August, down from 3.5 per cent in July,

That figure would return headline inflation to the central bank’s 2-3 per cent target band for the first time in almost three years.

Impacting the headline inflation reading in August was a decline in prices at the petrol bowser, which fell 2 per cent across the month, while the rollout of cost-of-living supports, most notably federal and state energy rebates, will temporarily drive electricity prices lower.

HSBC chief economist Paul Bloxham said while some RBA watchers were likely to press for rate cuts in the near term, core price pressures – which measured at 3.8 per cent in the year to July – threatened to further intensify because of the taxpayer-funded support.

“The income boost from these measures is more likely to add to underlying inflation than subtract from it, as they boost household disposable incomes,” he said.

Ms Bullock has repeatedly stressed that the impact of subsidies will not shift the dial on rate cuts, with the RBA expecting headline inflation to ease to 3 per cent by year’s end before rebounding to 3.7 per cent in December 2025 after the cost-of-living support expires.

By contrast, the RBA’s preferred gauge of underlying price pressures – trimmed mean inflation, which strips out the most volatile price movements – will not be impacted by state and federal subsidies and will not return to the target band until December 2025.

Opposition Treasury spokesman Angus Taylor accused Labor of “manipulating” the inflation figures via the taxpayer support. “Our core inflation is stuck. It hasn’t moved since January this year,” he said.