Investing.com - Reserve Bank of Australia (RBA) governor Michele Bullock emphasized on Thursday that the RBA "will not hesitate" to hike interest rates if inflation persists, despite understanding that it's news Australians don't want to hear.
On Tuesday, the RBA decided to hold the official cash rate steady at 4.35%, offering some relief to mortgage holders.
However, this reprieve could be short-lived if the disparity between aggregate demand and supply isn't addressed, Bullock stated in a speech on Thursday. She reiterated that the RBA board doesn't expect inflation to return to the 2-3% target range until December 2025.
"On balance, the board decided to keep interest rates on hold, judging that such an outcome would still meet the board’s mandate to balance its inflation and employment objectives," Bullock said. "But the board remains vigilant concerning upside risks on inflation and will not hesitate to raise rates if needed. I know this is not what people want to hear, but the alternative of persistently high inflation is worse. It hurts everyone."
Speaking from Armidale in NSW’s Northern Tablelands, Bullock acknowledged that the rising cost of living is being felt "acutely" in regional parts of Australia.
She noted that housing prices have increased more in regional areas compared to big cities since the start of the COVID-19 pandemic. Specifically, in Armidale, housing prices have surged by approximately 40%, with average rents rising nearly 25%.
"More generally, we know that the strain on household finances from high housing costs is being felt acutely in our regional areas as well as our cities and could continue for some time if construction activity remains low," Bullock said.