During a speech at the Anika Foundation fundraising lunch in Sydney, Bullock acknowledged the considerable strain on Australian households and businesses due to the current cash rate, which stands at a 13-year high of 4.35 per cent.
Bullock admitted that some borrowers are facing severe financial difficulties, with about 5 per cent experiencing a “cash flow shortfall.” This situation has led to tough decisions, such as selling homes and cutting back on essential spending. She highlighted that lower-income individuals are disproportionately affected by these economic pressures. Despite the hardship, Bullock emphasised that maintaining high interest rates is crucial for controlling inflation, which remains above the RBA’s target range of 2-3 per cent, currently standing at 3.8 per cent.
Bullock reinforced that a reduction in interest rates is not imminent. She stressed that cutting rates before inflation is properly addressed could exacerbate economic problems. Most economists predict that any potential rate cuts may not occur before February or even later in the year. Bullock noted that if economic conditions evolve as expected, the RBA might not be in a position to lower rates in the near term.
The governor warned that failing to rein in inflation could force the RBA to implement even higher interest rates, leading to greater unemployment and a higher risk of recession. This scenario would disproportionately impact lower-income households, who are already facing significant financial strain. Bullock emphasised that high inflation, if not managed, could lead to severe economic consequences, including a weak labor market and reduced job security.
In her address, Bullock also outlined the key drivers of inflation, such as housing costs and market services. She noted that while discretionary spending is down, essential costs like food, utility bills, and rent are putting more pressure on poorer and younger households. Higher-income households, on the other hand, can better absorb these costs due to greater financial flexibility.
Regarding recent political discourse, Bullock dismissed suggestions of a rift between herself and Federal Treasurer Jim Chalmers. She stated that both parties are focused on addressing inflation, albeit through different channels. Bullock maintained that while the government and the RBA have different roles, their shared objective is to mitigate the impact of high inflation on Australians.
Looking ahead, the RBA is set to meet again in late September, and it is anticipated that the cash rate will remain unchanged at 4.35 per cent. The next quarterly Consumer Price Index (CPI) figures, due in late October, will provide further insights into the trajectory of inflation and its impact on the Australian economy. Although there is light at the end of the tunnel, many Australians still need to dig deep until things improve.
Contact Accountancy Insurance
We would love to hear from you.
About Accountancy Insurance
Thousands of accounting firms offer our tax audit insurance solution, Audit Shield to their clients.
Find out why.