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He said the bank could not allow inflation to become entrenched,warning large increases in prices hurt the nation’s most vulnerable while driving down the purchasing power of people already struggling because of moderate wages growth.
Concerns are growing the United States,wherethe central bank last week increased official interest rates by 0.75 percentage points,may end up in a recession that would drag on global growth.
Lowe argued the current economy was “fundamentally sound” with very low unemployment and strong household spending,rejecting suggestions even moderate interest rate rises will drive the country into recession.
“I don’t see a recession on the horizon here,” he said.
But Deutsche Bank Australia chief economist Phil O’Donoghue said the RBA’s tighter monetary policy stance would probably start pushing unemployment up by the middle of next year.
He said the jobless rate,forecast to fall to 3.75 per cent by year’s end,could climb to 4.75 per cent by December 2023.
“If it proves accurate,a one percentage point rise in the unemployment rate within a year,we would describe that as a recession,even if Australia manages to avoid two consecutive quarters of negative growth,” he said.
“Against this backdrop,we now expect the RBA to be easing by late 2023. We pencil in 25 basis point rate cuts in November and December 2023.”
The RBA,in its most recent economic forecasts,is expecting a slowdown in economic growth over the coming year,from 4.2 per cent through 2022 to 2 per cent through 2023. But unemployment is tipped to remain below 4 per cent across both years.
Treasurer Jim Chalmers,who is working on a new budget for the 2022-23 financial year,downplayed talk of a recession.
“We’re not working on the expectation at this point of that risk occurring or eventuating. I’ve said a number of times,we have reason to be cautiously optimistic about the future of our economy,but first we have to navigate these difficulties which are right ahead of us,” he said.
Barrenjoey chief economist Jo Masters said she expected the RBA to follow a 0.5 percentage point rate rise next month with a similar increase in August and then quarter percentage point hikes in September,November and February.
“The intensifying domestic inflation risks and potential for that to feed through to inflation and wage expectations,alongside the global backdrop,suggest we will see a sprint to get the cash rate to around ‘neutral’,rather than a patient walk,” she said.