Reserve Bank of Australia Governor Philip Lowe hints at more rate hikes

Reserve Bank Governor Philip Lowe has hinted that more rate hikes are on the way – declaring it was “premature” to talk about rate cuts.

Interest rates were held at an 11-year high of 3.6 percent on Tuesday, the first break since April 2022.

Futures markets do not expect rate hikes during this monetary policy tightening cycle, and even a rate cut at the end of 2023.

But Dr Lowe said interest rates would remain at their highest levels since mid-2012 if inflation remained above the two to three percent target.

“If need be, it will be them,” he told the National Press Club in Sydney.

‘If we have to keep interest rates high for longer, so that inflation returns to two to three percent in the foreseeable future, then we will.’

The RBA chief also said it was too early to talk about rate cuts.

“I think it’s premature to talk about rate cuts,” he said.

“If we stick next month, it doesn’t mean we’ll go all year.”

The RBA’s 10 consecutive monthly rate hikes marked the most aggressive pace of monetary policy tightening since the beginning of the target interest rate era in 1990.

If we don’t raise interest rates, what will happen? Inflation is going to stay high, interest rates are going to have to go higher later, and there’s going to be more unemployment, so on an individual level, it’s very difficult, but rising interest rates was necessary and if we didn’t, then there’s more pain along the way ,’ said Dr Lowe.

“It’s a hard message, but it’s the truth.”

Inflation reached a 32-year high of 7.8 percent in 2022, but the monthly value moderated to 6.8 percent in February.

The Reserve Bank expects it to remain above the two to three percent target through mid-2025.

Futures markets no longer expect rate hikes during this monetary policy tightening cycle, and even rate cuts at the end of 2023

Dr. Lowe said an even more aggressive rise in rates to return to levels from a year earlier in 2024 would send unemployment rising.

“The Reserve Bank board is prepared to allow inflation to return a little more slowly than some other central banks,” he said.

“Whether it would be beneficial to reduce inflation to three percent a year earlier – there is an argument for that, but it would mean job losses, more job losses.”

With rental vacancy rates down to just one per cent in most of Australia’s cities, Dr Lowe revealed he was amazed at Australia’s strong population growth of 1.6 per cent.

“Our latest set of economic forecasts were made on the assumption that population growth would be slower — the big increase in population growth recently is a surprise to us, I think it is a surprise to most people,” he said. said.

With rental vacancy rates down to just one percent in most of Australia’s cities, Dr Lowe revealed he was surprised by Australia’s strong population growth of 1.6 percent (pictured is a rental row in Sydney’s Randwick)

“During the pandemic, people wondered if non-residents would ever want to come to Australia again – we closed our borders and made ourselves unfriendly.”

Treasury expects 650,000 people to arrive in Australia in fiscal years 2022-23 and 2023-24, with that number including the permanent cohort of skilled, family reunion and humanitarian arrivals, along with long-term international students.

Dr. Lowe said the rental market also tightened before Australia reopened in late 2021, noting that fewer people were living in each home due to the pandemic.

“This is mainly because demand for residential floor space increased as people worked from home and the average number of people living in each household fell,” he said.

He expected the rent shortfalls to last for five years.

‘The expansion on the supply side of the housing market is expected to be quite modest. It takes a long time for housing supply to fully respond to shifts in population growth – it took about five years in the previous period of strong population growth,’ said Dr Lowe.