Governor says the central bank will raise rates if necessary – despite the impact on struggling borrowers
Reserve Bank Governor Michele Bullock (pictured above) said she “will not hesitate” to raise interest rates again if there are indications that the nation is struggling to control inflation.
This vow comes despite the revelation that nearly half of the borrowers who have maxed out their home loans do not have sufficient income to cover their everyday expenses, according to a report by The Australian.
Economists are warning that the upcoming consumer price report, set to be released on Wednesday morning, could potentially lead to a 13th rate hike on Melbourne Cup Day, The Australian reported.
Writing for The Australian, Treasurer Jim Chalmers acknowledged the challenges posed by global economic unpredictability and the persistence of inflationary pressures.
“With global uncertainty from the slowdown in the Chinese economy, the war in Ukraine, conflict in the Middle East and the risk of higher fuel prices from global market dynamics, the next 12 months will bring challenges,” Chalmers said. “Inflation will remain higher than we’d like for longer than we’d like, both globally and here at home, and there will be some volatility in the months and quarters ahead.”
The RBA has been focused on bringing inflation back within its target range while ensuring employment growth. However, Bullock cautioned in a speech on Tuesday that there are risks that could slow down the return of inflation to target levels. She said “the board will not hesitate to raise the cash rate further if there is a material upward revision to the outlook for inflation”.
The potential rate hike has implications for homeowners with large mortgages. For a family with a $750,000 mortgage, another rate increase would result in approximately $1,800 more in monthly interest repayments compared to before the RBA started raising rates in May last year, The Australian reported.
Ms. Bullock also highlighted the financial strain faced by highly leveraged borrowers. Research has shown that around 25% of highly leveraged borrowers spend more on essential expenses and loan repayments than they receive in income. Additionally, a broader measure of essential expenses reveals that approximately 50% of highly leveraged borrowers face financial challenges, The Australian reported.
While financial markets are pricing in a 40% chance of a quarter-percentage-point increase in the cash rate to 4.35%, Ms. Bullock said that the RBA board is mindful of the moderation in demand and inflation rates. She acknowledged the time lag in the transmission of monetary policy and the need to balance the objective of bringing inflation back to target with the broader economic conditions.
The Australian Bureau of Statistics is expected to release figures showing a slowdown in consumer price growth from 6% in the June quarter to 5.3% in September, The Australian reported. Although still above the RBA's target range of 2-3%, this represents a significant decrease from the peak of 7.8% in December. However, the three-month period leading up to September is expected to show an acceleration in inflation to 1.1%, up from 0.8% in the previous quarter.
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