Editorial: RBA sounds alarm as inflation continues its march with the era of rate cuts officially over

If there’s one lesson Michele Bullock took from the tenure of her predecessor as Reserve Bank governor it’s to avoid, as much as is possible, telling households what to expect. It was Philip Lowe’s prediction — later proven to be disastrously wrong — that interest rates would remain at historic lows that brought about his downfall. Ms Bullock, as his successor, has strenuously tried to avoid the same fate. Statements made by the RBA this year about the direction of the economy and what might be on the horizon for mortgage holders were cloaked in qualifications and caveats. At her press conference following the bank’s monetary policy board meeting on Tuesday, Ms Bullock dropped that shield of linguistic vagueness. Rates would stay on hold at 3.6 per cent for now. But the era of cuts is well and truly over. The next time rates move, it is more than likely that they’re going up. When? Ms Bullock declined to say, but didn’t rule out a hike when the board next meets in February. A rate cut wasn’t even discussed at Tuesday’s meeting. “We didn’t explicitly consider the case for a rate rise at this meeting, but we did consider and discuss quite a lot the circumstances and what might need to happen if we were to decide that interest rates had to rise again at some point next year,” Ms Bullock said. Economists had expected the RBA to keep rates on hold, but the bank’s tone of extreme caution will rattle some. This was the RBA sounding the alarm. Headline inflation hit a worrying 3.8 per cent in the year ended October 31, the highest level since mid-2024 and well outside the bank’s target range of between 2 and 3 per cent. Ms Bullock said the RBA would do what was necessary to get that figure back under control, and warned that doing so might be “uncomfortable”. Just before Christmas, the news will come as a hammer blow to households which are still under significant cost-of-living pressures. It raises the stakes too for Treasurer Jim Chalmers, who will provide his mid-year Budget update next week. He has already flagged that will contain some “difficult decisions” as the Government searches for savings to help contain the growing deficit and pull back inflation. An extension of Federal electricity subsidies — which have been blamed for prolonging the inflation crisis by distorting the figures — has already been ruled out. What other levers will the Government be willing to pull in an effort to spare the economy longer term pain? Dr Chalmers and Finance Minister Katy Gallagher have instructed department heads to find massive savings within their budgets — reportedly of up to 5 per cent. Ms Bullock said she felt assured the Government understood its role in this fight. “(Governments) have a lot of things to juggle and at the same time try and make sure that they contribute to bring inflation down, which I think is very top of mind for them,” she said. Just how much discomfort will they be willing to bear? Responsibility for the editorial comment is taken by WAN Editor-in-Chief Christopher Dore