Reserve Bank governor Michele Bullock says Australian households are ‘in a pretty good position’ despite 13 interest rate rises

Reserve Bank Governor Michele Bullock has candidly admitted that borrowers are “very unhappy” with the central bank but can cope well with higher interest rates.

Speaking at a central banking conference in Hong Kong on Tuesday, Ms Bullock said the RBA’s punishing 13 rate hikes had caused a “buzz” among politicians and the wider community.

‘People are very unhappy. The cash flow channel works very quickly in Australia and is very prominent,” Ms Bullock said in reference to the number of borrowers who had switched from fixed loans to much higher variable interest rates in recent months.

“But what I want to emphasize is that despite the noise, households and businesses in Australia are actually in a pretty good position. Their balance sheets are quite good.

‘The pandemic has allowed them to build up large savings buffers, which are largely still intact.

“Housing prices are rising again, to everyone’s surprise, so that helps people feel a little richer.”

Governor Bullock said that as higher interest rates begin to curb inflation, the RBA needs to be “a bit careful” not to unnecessarily restrict economic activity.

“We want to make sure we keep inflation under control and we bring it back to our bond,” she said.

The central bank should “also ensure that we do that in the context of not imposing too much on the economy and increasing unemployment.”

“Despite that noise, households and businesses in Australia are actually in a pretty good position. Their balance sheets are pretty good,” Bullock said. She also noted that home prices are rising again, which “helps people feel a little richer.”

Later in her remarks, Ms Bullock said businesses were able to pass on higher wages and costs to consumers as overall demand remained robust.

While the central bank was limited in its ability to respond to rising energy prices, insurance premiums and rents, Bullock said these did generate “second-round effects” that the RBA had to respond to.

“Wages in Australia are not completely out of control, they are around four percent,” she said.

“But without any productivity growth, that actually results in a reasonable increase in unit labor costs in Australia.

“So what I think we’re starting to see are second-round effects of some of these costs. Companies notice that demand is sufficient and that they can pass on those costs.’

The RBA board will meet on December 5 for its final meeting of the year, where the central bank is widely expected to keep interest rates steady.

However, markets estimate a 68 percent chance of a new rate hike to 4.6 percent in June 2024.