Reserve Bank boss Philip Lowe has hinted more interest rate rises are on the horizon despite struggling Australians personally sending him “disturbing letters” about their hardships.
The governor fronted an at times fiery senate estimates hearing on Wednesday, his first public appearance since the bank hiked rates for the ninth consecutive month.
Since May, the cash rate has been aggressively hiked from 0.1 per cent to 3.35 per cent.
Financial markets now expect the cash rate to hit 4.1 per cent by August.
Dr Lowe said he had an “open mind” to further rate rises but didn’t know just how far the bank would go.
“It will depend upon inflation data, resilience, spending, and what’s happening with wages. I don’t think we’re at the peak yet but how far they need to go, we’re still unsure,” the governor said.
Dr Lowe also revealed he had been flooded with letters from mortgage holders struggling with the impact of the consecutive rate rises.
“I find it personally sort of disturbing, really, and people are really, really hurting. I understand that,” he said.
“But I also understand that if we don’t get on top of inflation, it means even higher interest rates. And more unemployment.”
The governor had been asked by Senator Nick McKim to directly respond to renters who had been “smashed” by interest rates while the “major banks are pulling in megaprofits”.
Dr Lowe added that profitable banks was “positive for the country”,
“I know it’s hard for people to accept when they’re suffering, problems with their personal finances, but the country is better off from having strong, resilient, effective banks who can provide the financial services that we need. All right?” he continued.
INTEREST RATE PAIN BETTER THAN ALTERNATIVE
The governor was also questioned about just how the central bank was factoring in the pain nine consecutive rises was having on Australians.
Dr Lowe told the hearing the RBA had spoken to bodies such as the Australian Council of Social Services and obtained direct feedback for individuals.
“We hear the message loud and clearly. And we factor that and we talk about at every board meeting how this is really, really hurting some households,” he said.
“But we also talk about if we don’t get on top of this, the pain will be worse. It’s not a nice message, but that’s the reality we face.”
PERSONAL CRITICISM ‘A BIT UNFAIR’
Dr Lowe also responded to criticism over the central bank’s aggressive rate rises, telling a senate estimates hearing attacks on him personally have been a “bit unfair”.
“That’s the job of the board of the Reserve Bank. It’s not just me. I find sometimes that it’s all sheeted down to me and that’s a bit unfair because it’s the board,” Dr Lowe hit back.
“There are nine of us, including (deputy governor) Michele (Bullock) who make these decisions. And we take them collectively. It’s not just me making these decisions.”
“There are nine people based on the advice of a large staff.”
I’M STICKING AROUND: LOWE
Dr Lowe told the committee that he understood his job did not always make him a popular person with the Australian public.
“I accept that. That’s why the central blank is independent from its role in the decision-making process. It’s easier for me to do unpopular things than maybe for you. I’m not complaining,” he said.
Senator McKim has repeatedly called for Dr Chalmers to sack the central bank boss for saying in late 2021 that interest rates would not rise until 2024.
Asked if he deserved to hold onto his job, Dr Lowe said he intended to serve out his seven year term which is due to end in September.
He did not indicate if he would be seeking a three-year extension to his term.
The federal government last year ordered a review of the RBA, due mid-year. It’s expected that review will help form Treasurer Jim Chalmers decision on whether to reappoint him.
Dr Lowe apologised in November for his comments.
Last week, the RBA indicated there are more hikes to come, as it uses interest rates as its main weapon in its battle to lower inflation which is sitting at a 32-year high of 7.8 per cent.
NO MORE BANKER LUNCHES, LOWE SAYS
The under-siege governor was also grilled over reports he gave a private briefing to big banks at a lunch hosted by investment bank Barrenjoey last week.
Dr Lowe said the lunch was part of the RBA’s longstanding practice to talk to market participants, business, journalists and politicians.
“I can’t live in a bubble. I need to talk to people. I need to hear what financial markets say and I like asking people questions,” he told the hearing.
But ultimately, he conceded the timing of the meeting was off and that from now on the bank would not hold “those types of lunches” before the release of the statement on monetary policy.
“If you’re meeting with me you want to have confidence I won’t go to the press and tell other people what you said. I expect the same courtesy. And that’s what happens 99.9 per cent of the time. That did not happen here,” he added.
AUSSIE RENTS WILL CONTINUE TO RISE
Australian rents will continue to skyrocket as housing constraints continue to rock the market, the treasury secretary has warned.
Steven Kennedy told a senate estimates hearing while overall inflation had peaked, price pressures in energy and housing will remain.
The national vacancy rate is currently hovering at a near-record low of 1 per cent.
Dr Kennedy said inflation in newly advertised rental prices had hiked sharply over the last 12 months, reaching 10 per cent nationally in January.
“Despite the slowdown in population growth during the pandemic, underlying demand for housing picked up owing to a fall in the average size of households,” he added.
“This reflects changes in household formation, as the community adjusted to rapidly changing circumstances through the pandemic.”
“More recently, strong underlying demand for housing has been driven by recovery and population growth amid constraints in new housing supply.”
Rental inflation, treasury forecasted, is expected to pick up “considerably” before peaking in June.
Overall inflation peaked in December at 7.8 per cent and the treasury expects cost pressures in new dwellings and automotive fuel to ease.
Energy prices will continue to bite for households and businesses despite government intervention.
Last year, the government intervened to temper skyrocketing gas prices.
Dr Kennedy said the price caps are expected to shave half a percentage point off inflation over the year to June.
In October, Treasury forecasted consumer gas prices to rise by 20 per cent in 2022-23 and another 20 per cent in 2023-24.
The Treasury boss said gas prices were now predicted to rise by 18 per cent and 4 per cent over the two years.
As the price pressures continue to weigh on household budgets, the economy will slow. Economic growth, Dr Kennedy said, would slow to 1.5 per cent through the next financial year.
Dr Kennedy told the hearing he believed the government’s fiscal stance over the next four years was “broadly neutral” – meaning it neither added nor reduced inflation.
Off-budget funds, such as Labor’s national reconstruction fund and social housing fund, would not have a notable impact on inflation he added.
“I’d be quite surprised if the establishment of those funds shifted demand in any significant way across that period,” Dr Kennedy said.
