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Investing.com -- Reserve Bank of Australia Governor Michele Bullock said on Tuesday the central bank remains prepared to raise the cash rate further if necessary, underscoring its determination to return inflation sustainably to target despite signs that domestic demand and labour market conditions have begun to ease.
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Speaking at the Anika Foundation Fundraising Lunch in Sydney, Bullock said the full effects of the RBA’s earlier rate increases were yet to be felt, reflecting the lagged impact of monetary policy, but warned underlying inflation remained too high even if the recent spike in oil prices proved temporary.
"The Board is prepared to act as required to achieve its mandate, including by increasing the cash rate further if needed," Bullock said, adding policymakers remained focused on preventing elevated cost pressures and inflation expectations from becoming entrenched in the economy.
Bullock noted inflation had risen above the RBA’s 2%-3% target even before the latest jump in oil prices, while headline inflation stood at 4% in May. Although demand growth has moderated broadly in line with the central bank’s expectations and labour market conditions have eased from previously tight levels, she said some further moderation in demand and labour market pressures would likely be required to return inflation sustainably to target.
The governor also warned that persistent weak productivity growth remained a structural constraint on the economy, limiting how quickly Australia can grow without generating renewed inflationary pressure.
Markets are now awaiting Australia’s June consumer price index report on Wednesday, which will provide policymakers with one of the final major inflation readings before the Reserve Bank’s next monetary policy decision on August 11, when it will also release updated economic forecasts in its quarterly Statement on Monetary Policy.
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