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The Reserve Bank of Australia governor said the economy is well placed, with inflation easing and the labour market resilient, but warned that global uncertainty requires policy flexibility. Interest rates have been cut three times this year, bringing the cash rate to 3.6%, with markets expecting further easing by mid-2026. Inflation is projected to return to the 2-3% target, while unemployment remains low at 4.2%. Household spending recovery and global risks, particularly weak growth in China, remain key concerns. The governor stressed that while growth has picked up and household incomes are improving, the RBA must stay ready to adjust rates if conditions deteriorate.
The Reserve Bank of Australia governor has said the economy is currently in a good position, with inflation easing and the labour market holding strong. At the same time, she noted that the global environment remains uncertain, and the central bank must stay prepared to respond if conditions change. Advertisement
Interest rates have been cut three times this year in February, May and August bringing the cash rate to 3.6%. These reductions were aimed at supporting households and businesses through stronger spending. According to the governor, domestic data since the August meeting has been broadly in line with expectations, and in some cases slightly stronger, but risks from overseas developments remain.
She pointed out that the outlook is still clouded by uncertainty and that policymakers must remain alert. One risk highlighted was that the expected recovery in household spending might not be as strong as forecast. If that occurs, the labour market could weaken while inflation falls below desired levels.
The RBA has been easing policy gradually, reviewing quarterly inflation data before each step. Current forecasts already assume some modest further easing. Market expectations suggest the bank may keep rates unchanged at its upcoming meeting, though a cut later in the year remains highly probable. Swaps pricing indicates a total of around 48 basis points of easing by mid-next year, equal to fewer than two rate cuts.
The governor also explained that inflation is on track to return to the midpoint of the 2-3% target band, and employment levels remain close to full. The unemployment rate is at 4.2%, which is still considered historically low. Job creation has slowed, but this was expected and is not seen as a sharp deterioration.
The June quarter saw the economy record its fastest annual growth in nearly two years, supported by an increase in household consumption. Monthly inflation rose unexpectedly in July, but overall price pressures have continued to ease since then. Real household incomes are expected to grow, which should support spending over the coming year.
At the same time, global risks remain important. China, Australia's largest trading partner, has shown signs of weak growth, with recent data from the country viewed as discouraging. If trade conditions worsen, it could affect Australia's outlook. In such a scenario, the governor said the RBA has room to lower rates further if necessary, given the current cash rate of 3.6%.
She summed up by saying that Australia is in a relatively strong position with stable inflation and a resilient labour market, but that flexibility in policy will be essential if conditions shift.
Source Reuters
5th Jun, 2025
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