RBA Governor Michele Bullock elaborates on why Australia is not cutting rates like its global peers, citing the challenges of high household debt and reliance on commodity exports.

The bank is sticking to a restrictive monetary policy setting despite global peers cutting rates, since tighter labor markets and higher underlying inflation in Australia call for a different approach. The RBA projects inflation to return to its target range by 2026, supported by measures to address supply chain disruptions and boost domestic consumption.

The Key Points:

• Headline inflation has eased to 2.8% but underlying inflation remains elevated at 3.5%

• Cash rate remains at 4.35%, with a sustainable return to the target expected in 2026 as a result of projected improvements in productivity and investment.

• Labor market still tighter than peers, as the unemployment rate in Australia has persistently been below the average of OECD economies.

• Australia's path diverges from that of peer central banks because of local economic peculiarities, such as the dependence on mining exports and the housing market with its problems of affordability.

Big Picture: The RBA's position reflects the broad divergence now evident in global monetary policy, where different countries increasingly follow a domestic lead, compared to the high degree of synchronization seen during the pandemic. That shows how inflation control could vary between different economic systems and may be as complex to negotiate as different types of weather on a global scale.

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