Job losses not RBA’s priority as bank keeps rates on hold

Inflation will remain the Reserve Bank’s number one focus, even if means more people joining the unemployment queue, according to RBA governor Michele Bullock as she warned against easing interest rates too quickly.

On Tuesday, the bank’s new monetary policy committee made a consensus decision to hold interest rates steady at 4.1 per cent after cutting them for the first time in four and a half years at its previous meeting in February.

RBA governor Michele Bullock said it was a consensus decision to keep rates on hold.Credit: Renee Nowytarger

Asked about the inflationary impact and risks to economic growth of incoming US tariffs – and whether she would prioritise dampening inflation or protecting growth – Bullock noted inflation could not be the “sole focus” but that it was the bank’s priority.

“Inflation is the number one thing you have to keep in control,” she said. “We’ll have an eye on what’s going on with unemployment, but there’s no point taking the brakes off and letting inflation accelerate because that will mean that unemployment eventually has to go up.”

Monthly inflation data released last week showed price growth continued to ease in the 12 months to February, with the bank’s preferred measure – the annual trimmed mean – dropping from 2.8 per cent to 2.7 per cent, within its target band of 2 to 3 per cent.

However, the quarterly inflation figures due at the end of this month will have a greater influence on the bank’s next decision in May.

The RBA’s statement accompanying its decision noted underlying inflation was continuing to ease, but that the board needed to be confident that this progress would continue so that inflation could return to the middle of its target band and remain there.

“[The board] is therefore cautious about the outlook,” it said.

Australia’s stronger-than-expected labour market – with unemployment remaining at a historically low level of 4.1 per cent in February – has complicated the picture for the Reserve Bank. A labour market where demand for workers is tight can indicate inflationary pressure in the economy, but economists are increasingly questioning how much higher unemployment needs to rise.

“I think everyone’s been pleasantly surprised that the labour market has held up,” Bullock said. “We are alert to the fact that it might not be quite as tight as [we think]...but we are still alert to the possibility that it might still be a little bit tight, and that might put wages under upward pressure, and hence inflation.”

Financial markets put the chance of the RBA cutting rates at its May 19-20 meeting at 75 per cent. By July, markets believe the bank will have taken the cash rate below 4 per cent.

Treasurer Jim Chalmers said he didn’t see the Reserve Bank’s decision in political terms, but that it reflected well on Labor’s economic management.

“I do think that the way Labor has responsibly managed the economy … and the fact that interest rates have started to come down is a reflection on the progress that Australians have made together on our watch as a government,” he said.

Shadow Treasurer Angus Taylor said living standards had collapsed under Labor, and that the RBA’s latest decision affirmed this.

“It continues to underscore for Australians that there’s no fast pathway back to the standard of
living they had when Labor came to power,” he said.

Commonwealth Bank economist Ryan Felsman said the board’s policy statement no longer explicitly mentioned caution about cutting rates, signalling the bank’s increasing bias towards rate cuts over rate hikes.

“A feature of today’s relatively short commentary was the frequent use of the words ‘uncertain’ and ‘uncertainties’, with pros and cons seemingly evenly balanced,” he said.

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