(Bloomberg) -- Australia’s central bank won’t wait for inflation to return to the midpoint of its 2-3% target before cutting interest rates, Governor Michele Bullock told a parliamentary panel on Friday, suggesting the board is open to beginning an easing cycle later this year.

“There’s a question that comes about when do we reduce the restrictiveness of monetary policy to neutral, and do we have to be in the band at 2.5% before we think about doing that? No, I don’t believe we do,” Bullock told lawmakers on Friday in response to a question.

“But we need to be very confident that we’re going to get there as we start to remove the restrictive nature of policy,” the Reserve Bank chief added in her first appearance before the panel since becoming governor.

The comments provide a hint on the central bank’s reaction function and suggest rate cuts might begin this year — as economists and traders predict. The RBA’s own forecasts show a closely-watched core inflation gauge, the trimmed mean measure that smooths volatile items, easing to 3.1% by December from 4.2% a year earlier.

“Today’s testimony confirms a softening in the RBA’s tightening bias following Tuesday’s board meeting, but also reluctance to provide much forward guidance at this stage,” said Andrew Boak, chief economist for Australia at Goldman Sachs Group Inc. “We expect the RBA will be in a position to commence an easing cycle by August.”

Still, Bullock used the platform to remind lawmakers that Australia’s inflation challenge “is not over,” reiterating the need for rates to remain at a 12-year high for some time yet.

“An inflation rate with a ‘4’ in front of it is not good enough and still some way from the midpoint of our target,” Bullock said in her opening statement to the panel. “At this stage, the board hasn’t ruled out a further increase in interest rates but neither has it ruled it in.”

The RBA left rates at 4.35% this week while retaining a mild hawkish bias, joining global peers in pushing back against expectations for near-term easing. The RBA expects core inflation to hit the midpoint of its 2-3% target band in 2026. 

Read more: RBA Sees Inflation Hitting 2.5% Target Mid-Point in 2026

The extended timeframe for inflation to return to target explains Bullock’s relatively hawkish stance and shows why economists and markets believe the RBA will trail counterparts from the Federal Reserve to the Bank of England in policy easing.

“We’re data dependent and if it looks like things are not turning out that way then we have the ability to adjust,” Bullock said. “It’s important that people understand that we will do what we need to do to get inflation back down because the alternative is bad for everyone.” 

Rates traders expect the RBA to hold off rate cuts until later in the year, while they are certain the Fed will begin easing by June. Australia’s central bank is seen as likely to undertake two quarter-point reductions this year, while the Fed is seen delivering as many as five.

--With assistance from Garfield Reynolds and Victoria Batchelor.

(Releads on inflation trajectory needed for rate cuts.)

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