Reserve Bank Governor Michele Bullock has issued a direct appeal to Australian businesses, urging them to play a crucial role in lifting the nation's persistently sluggish productivity growth. This call comes as the central bank continues its challenging battle to bring inflation under control through monetary policy measures.
Parliamentary Grilling on Inflation Pressures
Facing intense questioning during a parliamentary hearing in Canberra about the government's potential role in driving inflationary pressures, Governor Bullock shifted focus toward the private sector's responsibilities. She emphasized that lacklustre productivity growth has significantly contributed to the ongoing imbalance between economic demand and supply, creating conditions that forced the Reserve Bank to implement interest rate increases.
Investment Signals and Productivity Hopes
The governor pointed to a notable uptick in business investment toward the end of 2025 as a potential positive signal, suggesting this could translate into meaningful productivity improvements. This investment surge, primarily driven by several large-scale data centre projects, offers hope that increased equipment and technology per worker could make the Australian economy more efficient overall.
'If we are to achieve genuine productivity improvements, we need two fundamental elements,' Governor Bullock explained during the hearing. 'First, we require substantial investment to enhance labour productivity. Second, businesses must actively consider how they can combine labour and capital in more efficient and innovative ways.'
She further elaborated that current analysis indicates both these elements have been insufficient, contributing directly to Australia's productivity slowdown. Higher productivity growth would enable both public and private demand to expand more rapidly without exacerbating inflationary pressures.
Government Spending Under Scrutiny
Much of the parliamentary hearing focused on whether federal government spending policies had contributed to running the economy 'too hot' by failing to adequately control budget expenditures. Facing persistent questioning from Liberal MPs, Governor Bullock carefully avoided direct criticism of the Albanese government's fiscal approach while acknowledging mathematical realities.
'Mathematically speaking, if government spending declines and public demand doesn't grow as quickly, that will reduce aggregate demand unless the private sector compensates by increasing its own activity,' she stated diplomatically.
Recent budget projections indicate Commonwealth spending reaching 26.9 percent of GDP this financial year, representing the highest level since the 1980s when excluding pandemic-related expenditures.
Interest Rate Policy and Economic Management
When questioned about the Reserve Bank's relatively quick transition between its last interest rate cut in August and subsequent rate increases six months later, Governor Bullock defended the board's decision-making process. She emphasized that monetary policymakers always recognized the challenges of navigating neutral interest rate territory.
'This reflects our determined effort to achieve an economic soft landing,' she explained. 'It would have been considerably easier to bring the economy to its knees through aggressive interest rate increases, but we deliberately avoided that approach.'
The governor noted that while inflation remains higher than desirable, the labour market maintains relative strength, and the overall economic situation doesn't constitute a disaster. Her comments underscore the delicate balancing act facing monetary policymakers as they attempt to cool inflation without triggering unnecessary economic damage.
