RBA Governor Michele Bullock Explains Rate Cut Decision Amid Inflation Decline
Reserve Bank of Australia (RBA) Governor Michele Bullock has acknowledged the RBA's slow response in raising interest rates to combat rising inflation in the past, and emphasized the Bank’s desire not to make the same mistake when cutting rates.
Speaking before the House Economics Committee in Canberra on Friday, Bullock explained the RBA's recent decision to reduce the cash rate target, citing multiple factors for the cut.
She pointed out that inflation in Australia has sufficiently decreased, private demand has softened, and wage growth has slowed in line with RBA forecasts, all contributing to the decision for a modest rate reduction. However, Bullock stressed that the RBA was also mindful of its past delay in responding to inflation.
"The board is keen not to repeat its earlier mistake of being slow in raising rates," Bullock stated. "We didn’t respond as quickly as we should have to rising inflation." She further noted that the RBA is committed to reducing interest rates gradually, ensuring the decision is made at the right time, before inflation fully returns to the target band of 2-3 percent.
The RBA's focus now is on carefully managing rate cuts as inflation continues to ease and economic conditions evolve.
RBA Cuts Cash Rate for First Time Since 2023, Governor Explains Decision
The Reserve Bank of Australia (RBA) Board made its first interest rate cut since 2023 on Tuesday, reducing the cash rate target from 4.35 percent to 4.1 percent. This decision follows a series of rate hikes between May 2022 and November 2023, aimed at addressing inflation. Despite some critics arguing that the
move is premature and could undermine the RBA’s inflation-fighting efforts, RBA Governor Michele Bullock explained the board's reasoning during a House Economics Committee meeting on Friday.
Bullock emphasized that monetary policy operates with a lag, meaning that rate adjustments can take anywhere from 12 to 24 months to fully affect the economy. She acknowledged that the RBA had been slow in responding to rising inflation in 2021, which led to criticism from some quarters when other countries had already begun lifting interest rates. The RBA only started increasing rates in May 2022, during the federal election campaign, when inflation in Australia had already reached 5 percent annually.
In her remarks, Bullock clarified that the rate cut was not made lightly. She noted that the RBA had taken "a bit of insurance" with the rate hike in November 2023, which provided room for the current rate cut. Despite the reduction, Bullock stressed that the RBA would need to see sustained progress on inflation and economic conditions to ensure the country stays within the target inflation band of 2-3 percent.
Bullock also expressed confidence that Australia would return to the target inflation band this year, but emphasized that achieving sustainability was crucial. She reiterated that the RBA would remain vigilant and focused on ensuring long-term economic stability as it continues to adjust monetary policy.
References
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- Australia, S. C. B. O. (2025, February 26). Reserve Bank of Australia. Reserve Bank of Australia. https://www.rba.gov.au/
- Contact, C. P. A. H. C. a. 2. (2022, August 10). Standing Committee on Economics. http://aph.gov.au/Parliamentary_Business/Committees/House/Economics
- https://www.sciencedirect.com/science/article/abs/pii/S0022199621000945. (n.d.). https://www.sciencedirect.com/science/article/abs/pii/S0022199621000945.
- https://www.sciencedirect.com/science/article/abs/pii/S0022199621000945
- https://www.stlouisfed.org/on-the-economy/2023/oct/what-are-long-variable-lags-monetary-policy. (n.d.). https://www.stlouisfed.org/on-the-economy/2023/oct/what-are-long-variable-lags-monetary-policy
- Hutchens, G., & Ainsworth, K. (2025, February 21). The RBA didn’t want to start cutting rates too late, governor Bullock says. ABC News. https://www.abc.net.au/news/2025-02-21/rba-did-not-want-cut-rates-too-late-michele-bullock-governor/104964220
- Suljanovic, A. (2025, February 23). Bullock admits RBA was late to tackle inflation. Broker Daily. https://www.brokerdaily.au/economy/20013-bullock-admits-rba-was-latinflation#:~:text=%E2%80%9CIn%20November%202023%20we%20raised,it's%20still%20a%20prudent%20move.
- Wage Growth Tracker. (n.d.). Federal Reserve Bank of Atlanta. https://www.atlantafed.org/chcs/wage-growth-tracker
