The road to disinflation must be paved with caution, the Reserve Bank governor warns as global and domestic uncertainties threaten to derail Australia's progress.
Michele Bullock was questioned on a range of pressing topics in a colourful parliamentary hearing, including the central bank's opinion on a dubious cryptocurrency based on an internet meme, and its recent rate cut decision.
With inflation slowing more than expected, the board was convinced it was appropriate to slightly ease monetary policy for the first time in four years, she said.
But subsequent rate cuts are not guaranteed as Australia takes lessons from other nations.
"One learning from overseas is that disinflation can be bumpy, it doesn't go in a straight line back to target," Ms Bullock told politicians on Friday.
"The board remains cautious about the prospects for further policy easing."
In New Zealand and Canada, for example, interest rates increased much more and have come down harder, but their unemployment rates are relatively elevated.
Australia's labour market has largely held up by comparison, but this has created uncertainties for the RBA to navigate.
"We can be satisfied with the progress made so far, though the job is definitely not done," Ms Bullock said.
"The economic outlook remains uncertain and this is especially so the further we look into the future."
Data released by the Australian Bureau of Statistics on Tuesday shows the labour market remains remarkably resilient, with an extra 44,000 jobs added to the economy in January.
While strong employment growth is good news for jobseekers, it signals strength in the economy that could "delay or derail" the disinflation process, Ms Bullock said.
The RBA's board recognised Australian households have been particularly burdened, especially those with mortgages, and said high inflation had permanently increased prices.
"This has hurt everyone, but particularly those on lower incomes and more vulnerable," Ms Bullock said.
"If the board is comfortable that inflation is heading back to target sustainably - not just popping in and then popping back out again - then that'll give them more evidence that they can perhaps nudge the interest rate down further."
The Reserve Bank has attempted to factor global policy changes into its economic outlook and predicts hefty US tariffs on steel and aluminium will impact Australian growth, but its effect on inflation is less clear.
"Tariffs can have really dislocating impacts in the short term, and that's what can generate these big downturns in their economy, and have implications both for GDP and for inflation," RBA chief economist Sarah Hunter told the inquiry.
"(But) We're not as exposed as other countries."
Australia has relatively low tariffs and trade barriers, and the exchange rate has been a "substantial" buffer in the past, Ms Hunter said.
This means the impact of US tariffs, coming into effect in March, depends on how it plays out with other countries.
The Reserve Bank expects a further escalation with China but if Beijing can no longer export to the US, they might choose to engage in cheaper trade elsewhere and Australia could benefit.
Ms Bullock also reiterated her belief cryptocurrencies would not play a significant role in Australia's payment system.
When asked by Labor MP Jerome Laxale "do you consider Bitcoin as being different from meme coins ... such as the Hawk Tuah coin?", the bank governor said the RBA did not have an opinion on what Australia should be doing with these cryptocurrencies.
"If people want to transact with these things, that's fine, I don't see it as a core part of the payment system," she said.
