Reserve Bank governor Michelle Bullock is called out for cold-hearted comments by Jason Clare

The country’s most powerful banker has come under fire from a senior Albanian minister who warned households they may have to “sell their homes” due to the cost of living crisis, ending any hope of a looming bank downgrade.

Reserve Bank Governor Michele Bullock said sharp interest rate hikes and pressure on the cost of living are causing more people to ask for help they might not have asked for before.

“Although this group is quite small overall, the people in it have had to make quite painful adjustments to avoid falling behind on their mortgage payments,” she told the Australian Business Economists lunch in Sydney on Thursday.

‘These include things like limiting spending to the bare essentials, switching to lower quality goods and services, tapping into their savings or working extra hours.

“Some ultimately make the difficult decision to sell their home.”

But Education Minister Jason Clare criticised her comments on Friday morning.

“I don’t want anyone to have to sell their house. It’s easy to say, ‘Look, people might have to sell their house,’ but not when it’s you, not when it’s your life’s work to save up for a down payment and buy a house,” he said on Sunrise.

‘That’s why we need to reduce inflation. If we can do that, it will be easier for the Reserve Bank to cut interest rates.

‘Tax cuts are important and wage increases. That helps people pay their bills and pay their mortgages.

He also had a message for Australia’s major banks, calling on them to help Australians struggling to pay their mortgages.

‘There is also a role for banks here. Banks play an important role when their customers are struggling to pay their mortgages, by providing them with the support and flexibility to pay their mortgages.’

Bullock noted in her speech that low-income households and renters are most vulnerable to the rate increases.

“Lower-income households tend to spend more money on basic necessities, such as food, utilities and rent,” she said.

‘The experiences of individual households vary widely, but younger and lower-income households are particularly affected by the pressure on the cost of living.

‘People with a mortgage are suffering from the pressure on their cash flows, not only due to high inflation, but also due to the rising interest rates that have resulted from this.’

However, Ms Bullock has ruled out cutting rates before Christmas.

“Of course, circumstances can change and if economic conditions do not evolve as expected, the board will respond,” she said.

‘But if the economy develops overall as expected, the government does not expect to be able to cut rates in the short term.

‘We have to see the consequences in the form of inflation before we can do that.

“If we don’t get inflation down, that’s bad for everybody, absolutely everybody. So that’s the task I’m focused on. That’s the task the board is focused on. I really think the board thinks at this point that we’re still on that narrow path.”

The RBA cash rate was left unchanged last month at a 12-year high of 4.35 per cent. Relief is unlikely to come soon from 13 rate hikes in 2022 and 2023.

The most aggressive rate hikes since the late 1980s have already hit the economy, with growth of 1 percent in the year through June the weakest since the 1991 recession, barring a pandemic.

Finance Minister Jim Chalmers said on Sunday that the rate hikes were “destroying the economy” and reiterated that on Wednesday, pointing to the fact that the national accounts “confirmed” his view.

The RBA boss denied Opposition Leader Peter Dutton’s claim that there was war.

“He does his job and I do mine,” she said. “I wouldn’t use words like that.”

But Ms Bullock said state governments and the federal government should focus on curbing inflation, after suggesting in June that “recent budget outcomes could also impact demand”.

“The federal government and the finance minister have said several times that he is doing his best to reduce inflation,” she said.

‘All governments are aware of this because, frankly, all voters in their countries are struggling with high inflation.’

According to Ms Bullock, failing to tackle high inflation now will only lead to even higher unemployment in the future.

“High and volatile inflation can also cause shifts in people’s wealth and purchasing power,” she said.

‘It’s harder to sign a new contract or make savings plans if you don’t know how expensive things will be in the future.

‘Moreover, high inflation eventually requires disinflation, which can impose long-term costs on households in the form of higher unemployment.’

Inflation was 3.8 percent in June and the Reserve Bank does not expect the annual consumer price index to fall below its target of 2 to 3 percent before the end of 2025.

Unemployment rose to 4.2 per cent in July, the highest level in two years. The RBA predicts unemployment will rise to 4.4 per cent by the middle of next year.