The Reserve Bank of Australia (RBA) has warned that interest rates may not fall as much as previously expected if consumer spending continues to strengthen.
Answering questions after a speech, RBA Governor Michele Bullock said national accounts data on Wednesday supported the central bank’s expectations that Australians would spend more.
She said although consumers were value-conscious, they were starting to spend money on non-discretionary items, which the RBA expected, because real disposable incomes had been increasing for about a year.
“Wealth is rising because housing prices are rising, and normally under those circumstances, you would expect to see consumption starting to rise. So we are seeing it come back, and that's welcome,” Bullock said after a speech in Perth.
“We are seeing the private sector start to demonstrate a little bit more growth now, which I think is positive.
“What it means for the future of interest rates, I don't know at this stage but all I would say is if anything probably it’s a little stronger than we thought it would be.
“That's good but it does mean that it's possible that if it keeps going, then there may not be many interest rate declines left to come, but it all depends.”
Australia’s gross domestic product rose 1.8% year-on-year in the second quarter of 2025, higher than the 1.6% expected and 1.3% in the first quarter due to higher household and government spending and despite weaker public investment.
A recovery in private sector demand was one factor that the RBA had believed would warrant a more gradual reduction in rates, according to the Minutes of its last Monetary Policy Board meeting.
Markets see a high likelihood of the RBA lowering the official cash interest rate of 3.60% by 25 basis points in November, but the chances of the central bank moving this month are lower as it awaits economic data for more signs of the strength of the economy.
