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The Reserve Bank of Australia (RBA) Governor Michele Bullock warned that a quarterly rise of 0.9 % in core inflation would represent a "material miss" compared with the Bank's forecast of about 0.6 % and the market's expectation of around 0.8 %. Her remarks suggest that such a figure could reduce the chances of an interest-rate cut at the upcoming board meeting. With the cash rate at 3.60 %, markets currently assign a roughly 60 % chance of a 0.25 % cut and about a 70 % chance that rates will eventually bottom out around 3.10 %.
Reserve Bank of Australia Governor Michele Bullock noted that a 0.9% rise in core consumer prices for the third quarter would represent a notable deviation from the central bank's inflation forecasts and would need careful consideration when the board decides on interest rates in the coming week. Advertisement
Speaking at an economics dinner, Bullock addressed questions about upcoming inflation data, with market analysts expecting a quarterly rise of around 0.8%, while the RBA's own projections were closer to 0.6%. Her remarks reinforced analyst expectations that inflation readings above 0.9% could reduce the likelihood of an interest rate cut during the central bank's next policy meeting.
Currently, markets are estimating about a 60% probability of a quarter-point reduction in the 3.60% cash rate, and roughly a 70% chance that the rate could eventually reach 3.10%. The RBA has repeatedly signaled caution, stating that underlying inflation-particularly in housing and service sectors-remains more persistent than anticipated. The central bank has maintained that it must be confident inflation is moving sustainably lower before considering any further policy easing.
Recent labour market data showed unemployment rising unexpectedly to 4.5%, the highest level in four years. This development had previously led markets to increase bets on a potential rate cut. However, Bullock highlighted that employment figures can be volatile from month to month and said the recent increase was only slightly above the central bank's forecast of 4.25%.
She added that forward indicators of labour demand continue to look steady and that there is no evidence suggesting a sharp downturn in the jobs market. Still, she emphasised that if the board's assumptions about employment stability prove incorrect, policymakers should remain ready to reassess their stance and make necessary adjustments to monetary policy.
Source: Reuters
5th Jun, 2025
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