Hours after inflicting a little more pain on home buyers,business operators and ordinary households by lifting the official cash rate for a record seventh consecutive month,Lowe was in Tasmania explaining the RBA’s decision.
Reserve Bank governor Phil Lowe.Rhett Whyman
Lowe revealed the bank’s board members had openly discussed how family budgets were dealing with the previous six rate rises,which were mixing with high petrol prices,skyrocketing grocery bills and soon-to-be-soaring power costs.
But before his crowd started to believe the bank was about to seek absolution for its past mis-deeds,Lowe effectively warned them to abandon all hope of financial relief:the RBA is not yet finished with rate rises.
Like a preacher,Lowe described inflation in terms a sinner could easily understand.
“It is a scourge. High inflation devalues your savings. It worsens inequality in our society and it undermines our living standards. It hurts us all by impairing the functioning of our economy,” he said.
He went on to note that if the bank did not increase rates,as some have suggested they should not,the circles of hell would slowly constrict the country.
“If this were to happen,the evil of inflation would be with us for longer and the eventual increase in interest rates needed to bring it down would be greater,” he said.
“This would increase the risk of a severe recession and a sharp rise in unemployment. It would be much better to avoid such a costly outcome and so we have acted strongly to avoid it.”
Lowe addressed Hobart business leaders a few hours after he released a statement that,while missing mentions of gluttony and wrath and violence,did paint a pretty bleak picture for the bank and the economy.
Reserve Bank expected to announce a seventh consecutive interest rate hike today.
Despite the hefty increase in mortgage rates - equivalent to more than $1000 a month on an $800,000 mortgage since May - the bank has upwardly revised its inflation outlook.
The bank’s job is to hold inflation between 2 and 3 per cent over the economic cycle.
Yet,the RBA now reckons inflation will be around 4.75 per cent at the end of next year and “a little above” 3 per cent at the end of 2024.
That would suggest the bank has not lifted interest rates enough.
But Lowe also revised down the RBA’s outlook for economic growth. It was tipping growth to average 1.75 per cent over the next two years,but that now looks around 1.5 per cent.
That would suggest the bank’s rate rises are biting so much they will measurably slow the economy.
In other words,the Reserve Bank’s interest rate settings are not sufficiently high to bring inflation under control but will slow the economy to such a point it will be shrinking on a per capita measure.
The only ray of divinity amongst all this is the expectation that unemployment will only gradually increase through to 2024. Yet that relies on everything going right.
As Lowe noted,the bank is trying to walk a difficult trail and “we could be knocked off that narrow path”.
Off that path is a world of high unemployment,business bankruptcy,households unable to make ends meet,mortgagors paying off loans worth more than their homes. That’s a hell in anyone’s language.
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