FILE PHOTO: Governor of the Reserve Bank of Australia Michele Bullock attends the monetary policy decision media conference, in Sydney, Australia, April 1, 2025. REUTERS/Hollie Adams/File Photo

By Peter Hobson and Stella Qiu

CANBERRA/SYDNEY (Reuters) -Australia's economy is in a good place, its top central banker said on Monday, while slowing inflation and a resilient labour market mean policymakers have room to ease policy further if needed to deal with shifting risks.

Appearing before lawmakers, Reserve Bank of Australia Governor Michele Bullock said the recent rate cuts were expected to support spending by households and businesses, but the global environment was uncertain and unpredictable.

"Since the August meeting, domestic data have been broadly in line with our expectations or if anything slightly stronger – the Board will discuss this and other developments at our meeting next week," Bullock said.

"But the economic outlook continues to be clouded by uncertainty...So we need to be alert to the risk that circumstances may change and be prepared to respond if necessary."

When asked about the biggest risks to economic outlook, Bullock highlighted the global environment and the possibility that the recovery in consumption may not pick up as expected.

"That might not be good for the labour market, and we will find ourselves in a position where we are perhaps lower on inflation and worse on employment than we would like to be," she said.

The RBA has so far adopted a gradual and cautious approach to policy easing, having cut rates in February, May and August to reach the current 3.6% after assessing inflation data for each quarter. It has said the pace of further policy easing depends on the flow of data.

Its forecasts were conditioned on some further modest easing of monetary policy. Investors are wagering the RBA will skip a move in interest rates at its September 29-30 meeting, although a move in November is still about 75% priced in.

Swaps imply a total easing of 48 basis points by the middle of next year, equivalent to fewer than two more rate cuts.

'IN A GOOD POSITION'

The central bank indicated this month that it was close to achieving both of its mandates, inflation and employment. Inflation was on track to return to the midpoint of the 2-3% target band, while the labour market was operating close to full employment.

The economy also grew at its fastest annual pace in almost two years in the June quarter as consumer spending finally picked up, while monthly inflation unexpectedly spiked higher in July.

Bullock said the recovery in household consumption is forecast to sustain as real incomes grow and the economy picks up over the next year.

The slowdown in job creation is in line with forecasts, but policymakers do not see a sharp deterioration with the unemployment rate still at a historically low 4.2%.

If changes in global trade end up badly affecting China, Australia's biggest trade partner, Bullock said the central bank has room to ease policy further, adding that the recent Chinese data has not been encouraging.

"We are sort of in a good position. We have got pretty strong labour markets still and inflation is back in the band," she said.

"The interest rates are still at 3.6% and therefore we have got room to move if we need to."

(Reporting by Stella Qiu in Sydney and Peter Hobson in Canberra; Editing by Muralikumar Anantharaman and Jamie Freed)