Australia

Reserve Bank governor predicts 7 per cent inflation by year’s end, warns of further rate hikes

Reserve Bank Governor Philip Lowe has warned Australians to be prepared for higher interest rates, saying inflation must be brought under control.
In its first public appearance since the RBA raised cash rates by Dr Lowe said inflation was forecast to rise to 7 per cent by the end of the year.
This compares with an actual inflation rate of 5.1 percent.
“This is a very high number and we need to be able to draw a course back to two to three percent. I’m confident we can do that but it will take time,” Dr. Lowe said in a rare TV interview on the ABC. 7.30 on Tuesday.

“With inflation as high as it is, and interest rates as low as they are, we thought it was important to take a decisive step in normalizing monetary conditions and we did so at the last meeting.”

He said it is reasonable to expect the cash rate to reach 2.5 per cent at some point, but said it will be driven by events.
The cash rate now stands at 0.85 percent after the RBA raised it to consecutive board meetings from a record low of 0.1 percent.
It was only last year that the RBA hoped to keep the cash rate low until 2024, but Dr Lowe said that was never a promise.
“The economy did not evolve as we had hoped. It was much more flexible and inflation was higher. We thought we needed to respond to that,” he said.

He said the economy is in a remarkable shape with the unemployment rate at a 50-year low, homes that have built financial buffers around $ 250 billion and the number of people falling behind on mortgage repayments are actually declining.

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His comments came as global stock markets in turmoil fear the U.S. economy could fall into recession if the Federal Reserve raises interest rates aggressively to combat its own inflation problems.
U.S. inflation is at 8.6 percent, the highest level in 40 years.
But Dr Lowe is confident the Australian economy will continue to grow strongly over the next six to 12 months.
“There’s always a bounce in all COVID-19 restrictions, people are spending in a way they couldn’t do last year,” he said.
Dr. Lowe said there is a huge delay in construction work to be undertaken and the number of jobs is extraordinarily high.

“So people can be confident their work will be there and in this environment, people will continue to spend,” he said.

Reserve Bank governor predicts 7 per cent inflation by year’s end, warns of further rate hikes Source link Reserve Bank governor predicts 7 per cent inflation by year’s end, warns of further rate hikes

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