RBA boss Michelle Bullock reveals what will spark another rate hike – as she makes a heartbreaking admission

The Reserve Bank governor says letters from struggling borrowers are difficult to read but push the central bank to achieve its goals of helping Australians.

Michele Bullock acknowledged the pressure on mortgage holders from higher interest rates, telling a parliamentary hearing that this is ‘what drives us to try to make sure we stay on this narrow path’.

“I get a lot of letters, and I read those letters, and some of them are very difficult to read,” she said Wednesday.

The governor said Australia is still on the narrow path to a “soft landing”, where the economy slows enough to beat inflation while maintaining gains in the labor market.

Having a job was critical to the health of household balance sheets, she explained, and the ability to make higher repayments.

Reserve Bank Governor Michele Bullock (above) admitted she may be forced to raise interest rates

The plight of stressed mortgage holders ensures the Reserve Bank remains focused on achieving a soft landing and keeping people’s jobs

And while the 40 per cent of the population exposed to interest rates as mortgage holders were “facing challenging times”, Ms Bullock stressed that higher prices hurt everyone.

“We don’t want to extend higher interest rates for longer than necessary, but we need to make sure they stay in place long enough to bring inflation back down,” she said.

On the interest rate trajectory, Ms. Bullock reiterated that the central bank was “not judging anything in or out” and would base its next decisions on incoming data.

“If, for example, it turns out that inflation is going to rise again, or that inflation is much more persistent than we think and we cannot get inflation down, then we will not hesitate to raise interest rates again,” she said.

“If, on the other hand, the economy turns out to be much weaker than expected, putting more downward pressure on inflation, then we will look for easing.”

Asked about the impact of the federal government’s energy bill cuts on the RBA’s fight against inflation, Ms Bullock agreed with Treasury estimates that the overall package would cut a quarter of a percentage point from headline inflation.

After the federal budget, the $300 energy rebate plan drew criticism from some economists who warned it would ease headline inflation but boost spending elsewhere.

Ms Bullock said energy bill relief would reduce headline inflation “at the margins”, and could also help keep inflation expectations anchored and influence the prices of items indexed to the consumer price index.

“But in terms of the underlying inflation pulse, we’re looking through that… we don’t think it’s going to have an impact on that,” she said.

“We try to look through things that are one-offs and can be reversed.”