Time to talk about the white tax elephant in the room.

Why RBA’s Michele Bullock is keeping the interest rate hike door open.

Reserve Bank Governor Michele Bullock has asserted her influence over the economy, particularly addressing calls for an early rate cut. With a determined approach, Bullock, the newly appointed central bank governor, has adopted a hawkish stance, diverging from the global trend where central banks are considering rate cuts. She not only talks down the rates but also emphasises the potential for rate hikes.

This shift marks a new era for the powerful Reserve Bank of Australia (RBA), following a shake-up initiated by Jim Chalmers, which resulted in the removal of the previous governor, Philip Lowe. The recent RBA board meeting displayed changes in its structure, extending to a two-day affair, less frequent meetings, and staggered interest rate decisions over six weeks.

Adding to the intrigue, rate decisions are now followed by press conferences, mirroring the format of the US Federal Reserve. Bullock, during these sessions, answers questions ranging from Taylor Swift to tax cuts, showcasing her straightforward communication style.

While last week's official figures indicated a faster-than-expected cooling of inflation, Bullock surprised observers by leaving the possibility of interest rate increases on the table. Unlike other central banks contemplating rate cuts, Australia, under Bullock's leadership, is not ready for such discussions until more evidence suggests sustainable inflation retreat.

Despite market expectations that the November rate rise to 4.35% is the peak, Bullock highlights balanced risks and uncertainties, stating that the RBA is not ruling in or out any actions. While rate cuts are anticipated later in the year, Bullock remains cautious, expressing concerns about excessive demand in parts of the economy, potential shocks, and upcoming wage rises and home price increases.

Bullock is wary of premature assumptions about future rate cuts, as she believes it could spur additional spending, leading to potential economic challenges. She emphasises the RBA's focus on bringing down inflation, noting the neutrality of the Albanese government's stage three tax cuts to inflation.

Highlighting the delay in Australia's rate rise cycle compared to the rest of the world, Bullock reminds homeowners that rampant inflation poses a greater threat than higher cash rates. She cautions against banking on future rate cuts, as it could fuel further spending.

This analysis is based on an article by Eric Johnston from The Australian.