RBA interest rates Australia: Warning issued

The country’s most powerful banker, with a seven-figure salary, says she understands Australians are struggling. New figures show mortgage holders are bearing the brunt of the cost of living crisis.

Reserve Bank Governor Michele Bullock said on Tuesday that a rate cut is unlikely in the next six months.

“I understand this is not what people want to hear,” she told reporters in Sydney.

But the woman in her early 60s who earns $1.09 million in retirement and has worked at the Reserve Bank since 1985 said she understood people were having financial problems as a result of her rate hikes.

Her pay rose from $817,800 in September last year, when she was promoted from deputy governor to become the first woman to lead the RBA.

She was at the board table, as governor or deputy governor, when the RBA raised rates 13 times in 2022 and 2023.

This has led to a 68 percent increase in monthly mortgage payments, meaning that someone paying off an average $600,000 loan would pay $18,744 more per year.

“I know there are a lot of households and small businesses that are struggling with the interest rates that they are at. A lot of people are struggling and we are very aware of that,” she said.

“We can’t just let inflation happen. It’s bad for everyone, and especially for people on lower incomes. That’s why we have to continue to reduce inflation.”

Baby boomers are the generation least affected by the cost of living crisis. New data from the Australian Bureau of Statistics shows that the cost of living for those on state pensions rose by 3.7 per cent in the year to June.

This was below the general inflation rate of 3.8 percent. The generation born between 1946 and 1964 had access to a pension and were more likely to be retired.

By comparison, the cost of living for workers rose 6.2 percent as the younger generation struggles with sky-high mortgage and rent payments.

This means that the older generation, struggling with lower living costs, is still spending money, while younger homebuyers and renters are limiting their spending. However, inflation remains high.

Relief from the most aggressive rate hikes in a generation is unlikely before Christmas, as the Reserve Bank has said inflation is still too high and left the cash rate unchanged at a 12-year high of 4.35 percent.

“Given what we know now, rate cuts are not on the agenda in the near term,” Bullock said.

But Ms Bullock admitted there was a risk that unemployment would rise too high if rates remained high for longer.

“We’re concerned that if certain things happen and the economy slows down faster, more people will lose their jobs. That’s not good for people either,” she said.

The Reserve Bank also published new forecasts on Tuesday showing that headline inflation, also known as the consumer price index, will not fall below its 2 to 3 percent target until December 2026, a year later than previously forecast.

A new interest rate hike is not ruled out.

“The data has underlined the need to remain vigilant to upside inflation risks and the Governance has not ruled out any clauses yet,” the RBA statement said.

‘Policy will need to be sufficiently restrictive until the Council is confident that inflation is moving towards the target range in a sustained manner.’

Luci Ellis, chief economist at Westpac and a former deputy governor of the Reserve Bank, said the bank should reassess its forecast for a rate cut in November.

“Given the Council’s apparent failure to cut rates this year, our expectation of a rate cut in November is unlikely to be realised,” she said.

The Reserve Bank under Ms Bullock and her predecessor Philip Lowe has implemented the most aggressive rate hikes since the late 1980s, when baby boomers were paying 18 per cent interest but on homes that were much cheaper relative to their incomes.

But the $1.09 million superannuated woman who has worked for the Reserve Bank since 1985 said she understood what it was like to get into financial trouble (pictured is Brisbane’s Queen Street Mall)

But this aggressive approach to tightening monetary policy led to a recession in 1991.

Shane Oliver, chief economist at AMP, fears the Reserve Bank will make the same mistakes it did 35 years ago and be forced to cut rates before February 2025.

“There is an increasing risk that rate cuts will come sooner if stock markets continue to fall sharply and economic data increasingly warns of a high risk of recession,” he said.

‘In terms of what the RBA should do as opposed to what we think it will do, given the US experience it should now consider cutting rates as it now faces the risk of much higher unemployment and below-target inflation.’