Reserve Bank of Australia Governor Michele Bullock has cast doubt on whether the cumulative 425 basis points of interest rate hikes since May 2022 are sufficient to bring inflation sustainably back to the 2–3% target band. Speaking at a public event, Bullock said the key question facing the board is whether the lagged effects of past tightening will be enough, emphasizing a data-dependent and cautious approach. She noted that inflation has moderated but remains above target, and the RBA is prepared to hold the cash rate at 4.35% for as long as necessary.
The remarks came just hours after fresh data from the Australian Bureau of Statistics showed the monthly CPI indicator rose 3.4% year-on-year in December 2024, up from 3.1% in November and well above the 3.2% forecast. Core inflation accelerated to 3.8%, reigniting debate among economists. Major banks ANZ and Westpac now see a significant risk of a 25-basis-point rate hike to 4.60% as soon as March. Markets have sharply scaled back expectations of a mid-2025 easing cycle, sending the Australian dollar higher and bond yields spiking.
For households, the prospect of further tightening means mortgage rates will remain elevated longer. A 0.25% increase would add roughly $100 per month to repayments on a typical $600,000 variable-rate mortgage. The inflation uptick was driven by sticky services prices (rents, insurance, medical), the unwinding of energy rebates, and food supply disruptions. The RBA's next policy decision is due in May, but the February board meeting will be closely watched for any shift in language.
