Interest rates decision as it happened: RBA hikes rates to 15-year high

The Reserve Bank does not expect Australia to fall into recession, despite interest rates remaining high.

Bullock told reporters that a recession was not the bank’s central forecast, pointing to Australia’s still-low unemployment rate and a labour market the RBA believes remains tight.

“That is not our central base case at this point,” she said.

She contrasted Australia with economies including New Zealand and Canada, where rates were pushed higher, and unemployment has since climbed well above Australian levels.

“New Zealand and Canada – when they raised interest rates they raised them a lot higher,” she said.

“And they’ve now got unemployment rates which are much higher than ours.”

Bullock said slowing demand remained necessary if inflation was to return to target.

“Demand has to grow more slowly than supply for a period,” she said.

“That’s a fact. That’s why we’ve got these inflationary pressures.

“And still the aim is to, as I said, bring that excess demand down so that we can preserve as many of the gains in the labour market as possible.”

Bullock acknowledged today’s rate decision will hit households hard, saying there was nothing she could say to make the situation easier.

“I understand that. This – this is tough,” she said.

Bullock stressed the board "had not taken the decision lightly" and was acutely aware of the impact on borrowers already struggling with higher repayments.

“We knew that this was going to hit some people pretty hard. We know this," she said.

But she said the board believed higher rates were necessary to bring inflation back down.

“We need to do it if we are to bring inflation back down. That’s our mandate.”

Bullock said the pain households were experiencing now aimed to restore price stability over the coming years.

“Ultimately, in the long run, hopefully in the next couple of years when we get inflation back down, this will all have been worth it.”

Bullock says weak productivity growth remains a key challenge for the economy as the Reserve Bank works to ease inflation back to target.

Headline inflation is sitting at 3.5 per cent – above the RBA’s target range of 2-3 per cent.

Bullock says financial conditions remain restrictive, pointing to measures including credit growth and the housing market, but domestic capacity constraints continue to keep inflation high.

Productivity growth also remains weak, and the labour market is still “a little tight,” while the global economy has proved more resilient than expected.

Domestic pressures are being compounded by renewed conflict in the Middle East, with upside risks to inflation "beginning to materialise.”

Bullock has been asked about the impact of the Iran war on inflation – unsurprisingly, given how frequently Treasurer Jim Chalmers has pointed to it as the culprit for surging prices.

She has acknowledged it is making the fight against far more difficult than it otherwise would be, and that it has dragged on for far longer than originally thought (remember when US President Donald Trump said it would be done in a few weeks?).

“I’ve said this before, but I’ll say it again: the Middle East conflict has been a big shock and it’s made us all poorer in this country,” she said.

“That is a fact. You will all recall that when the Middle East conflict first started, everyone was sort of thinking, ‘Oh, it’ll probably not last very long.’

“Well, that’s clearly not true. It’s lasted and there doesn’t seem to be any end to it.

“That means that fuel prices, fertiliser prices, transport prices, all these things now are permanently higher. So this idea that they would go up and then come down again, it just hasn’t happened.”

However, she has also made it clear the war isn’t the only gremlin pushing prices skywards.

“This isn’t all about the Middle East conflict,” she said.

“It is making things much worse. But we did start from a position of excess demand anyway, and that’s why we started raising interest rates even before the conflict started.

“But it’s made it worse.

“And the longer it goes on, I think the more challenging it is to keep inflation expectations grounded at a level lower than what inflation is at the moment.”

The global AI investment boom is adding to inflation pressures in Australia, as surging demand drives up the cost of key inputs, Bullock says.

Prices have risen for parts of the AI supply chain, including software and commodities.

The boom is also increasing demand in the Australian economy, even as capacity is already stretched.

Alongside disruptions to global oil supplies, the Reserve Bank says global factors could keep inflation higher for longer than previously expected.

RBA Governor Michele Bullock has started her post-meeting press conference.

She said high inflation hurts all Australians, especially the most vulnerable.

Bullock acknowledged higher interest rates place a heavy burden on households with loans, but said slowing the economy was necessary to return inflation to target.

She said Australians were already feeling the effects of higher prices, with pay packets no longer stretching as far as they once did.

That, she said, was why stopping inflation from worsening was critical.

Bullock also made it clear the RBA was prepared to raise rates again if needed to bring inflation back under control.

Taylor claimed the fourth rate rise this year was entirely avoidable.

“The current interest rates are a result of Labor’s actions,” he said.

“Now we know that this is a government that is spending too much. We also know it’s an economy that is not working, and that drives up inflation and it drives up interest rates.“

So what’s the answer to high rates and inflation? Taylor says the economy needs fixing.

“That means axing Labor’s toxic taxes and their red tape,” he said.

“It means slashing electricity, energy costs, scrapping net zero, making sure we’ve got a migration policy which is aligned with the housing that we have in this country and putting Australians first.

“That plan will put downward pressure on inflation and will put downward pressure on interest rates, which is what Australians need right now.“

The opposition leader did not say how exactly his ideas would bring down prices.

Opposition Leader Angus Taylor and Shadow Treasurer Tim Wilson have spoken to the media, criticising the government for the latest “devastating blow” to households.  

“Federal Treasurer Jim Chalmers has been unlucky apparently 16 times now with increases in interest rates,” Wilson said.

“We know that the increase in interest rates is going to put further pressure on household budgets by about $120 further a month from just this one decision.

“And the economists are now warning that is not the end of the cycle, and we could see two or three further interest rate rises over the next nine months.”

Chalmers has spent the majority of his press conference parrying away criticism and putting some responsibility for the nation’s inflation problem on the war in the Middle East.

No surprise there. He has repeated what he has been saying to the media all day: there are more factors contributing to the inflation rate than just government spending. 

That’s all from our treasurer for today.