Australia’s central bank is assessing whether its current policy stance is sufficiently restrictive after some upside inflation risks appeared to be materialising. Governor Michele Bullock delivered the warning in parliamentary testimony on 18 September. The cash rate stands at 4.35% after 75 basis points of increases this year. The Monetary Policy Board is due to meet again in just over a week.
Headline and underlying inflation have been around or slightly above 3.5% over the past year, above the RBA’s 2% to 3% target. August forecasts did not return inflation to around the target midpoint until late 2027. Unemployment was 4.5%, which Bullock described as low by historical standards. She said inflation remained too high and needed to be prevented from becoming embedded in price and wage setting.
GLOBAL COST PRESSURES INTENSIFY
The Middle East conflict has lifted oil prices and added directly to petrol costs, the RBA said. Firms are also passing higher fuel-related input costs into other goods and services. Bullock warned that a broader pass-through could make inflation more persistent and require a stronger policy response.
The global AI boom is raising prices for some supply-constrained technologies, while extreme weather is pressuring energy and agricultural prices. Domestic capacity constraints and a labour market near full employment may amplify those effects. Housing has softened, but the RBA said financial-stability risks remained contained because borrowers had built substantial savings buffers.
NEXT MEETING TURNS ON PERSISTENCE
Reuters reported that rate futures implied a 93% probability of a rise at the 28-29 September meeting. The same report said markets were pricing the cash rate at 4.85% by early 2027. Those expectations are market assessments, not a decision by the board.
Policymakers will examine whether the tightening already delivered can return inflation to target within a reasonable period. Incoming price data, firms’ cost pass-through and labour-market capacity will shape that judgment. Bullock said monetary policy was positioned to respond as the risks unfold.