Reserve Bank of Australia governor Phillip Lowe says more interest rate rises will be needed to address inflation despite mortgage strife being faced by Aussie homeowners.
Reserve Bank Governor Philip Lowe has acknowledged the personal pain caused by the recent series of interest rate rises, but noted that tackling inflation is a critical goal. He discussed the difficulty of maintaining a “soft landing” for the economy, with inflationary pressures from both demand and supply-side factors. Lowe also addressed the large pool of unused savings sitting with households and the potential for it to cause a wage-price spiral. He stated that the RBA is carefully monitoring spending and speaking to banks about mortgage holders in order to ensure economic stability.
Governor Lowe addressed concerns of Coalition senators regarding government ministers potentially undermining the central bank’s independence. He also dismissed worries of 800,000 loans facing increased repayments in 2023, noting that the data on those behind on repayments was “almost a record low”. The governor further stated that fiscal policy from the federal government was “broadly neutral from a demand management side” and welcomed a revenue boost from the terms of trade. In response to criticism regarding a private lunch with bankers, Lowe explained that he was gathering views about issues such as the resilience of household spending and potential changes in the labour market. He also downplayed a report of bond yields rising during and after the lunch, saying similar movements occurred in the New Zealand market at the same time.
RBA Governor Lowe On Effects of Variable Interest Rates
At his most recent press conference, RBA Governor Philip Lowe had a lot to say. From his discussion about the current wage-price spirals to his views on variable interest rates, the federal government’s policy, and the criticism he received from the lunch he had with bankers, this blog post will explore what the RBA Governor had to say and his thoughts on the current state of the economy. So, buckle up and get ready to learn more about the RBA and its policies.
RBA Raises Interest Rates to Combat Inflation
The Reserve Bank of Australia (RBA) has decided to raise interest rates by 3.35%. This comes as a surprise, as most economists had predicted that the RBA would keep rates at their current low level. The main reason for this decision is inflation, which the RBA believes is dangerous and corrosive.
Inflation is a term that economists use to describe the increase in prices across a broad range of goods and services over time. It’s often seen as a negative thing, because it can erode people’s wealth, damage income inequality, and lead to higher interest rates and unemployment. However, the RBA believes that it’s essential to keep inflation in check – no matter how unpopular these measures may be among certain groups.
The last major bout of high inflation occurred 30 years ago – which was also during Philip Lowe’s time as an economist at the RBA. Since then, many negative consequences have resulted from high levels of inflation, such as decreased savings rates, increased poverty rates, and decreased investment opportunities. If these measures are properly taken into account by all economically involved parties – including consumers, businesses, and governments – then perhaps we can avoid some of those consequences this time around too.
RBA’s Focus to Protect Savings and Create Jobs Amid High Inflation
As we enter into the year 2021, it is important that the Reserve Bank of Australia (RBA) focuses on three key areas: protecting people’s savings, keeping prices low, and creating jobs. This was highlighted recently by Governor Philip Lowe in his Quarterly Financial Stability Review (QFR).
Lowe has noted that inflationary pressures have started to build as demand-side factors such as restaurant and travel prices have started to increase in recent months. This is due to an underlying increase in the cost of goods and services due to a ‘demand side inflationary effect’ – which is when an increase in demand for goods and services causes prices to rise. However, whilst this may seem like a good thing at first glance, it’s actually suppressing wage growth given its close relationship with consumer spending power. If wage growth does not recover soon then price rises could start becoming more prevalent – something which would be detrimental for Australians’ financial wellbeing.
One key area where the RBA is working closely with banks is in relation to repayment plans related to fixed interest rate mortgages that are reaching their end date soon. As unpaid debt remains at record lows for 90+ day mortgage delinquencies, banks are keen to get these loans repaid as quickly as possible so that they don’t become a burden on taxpayers or credit ratings. In addition, the RBA has also warned borrowers who are considering taking out new fixed-rate mortgages that they should consider their long-term affordability before committing funds. All of these efforts will be essential if we want Australians to maintain strong levels of savings and achieve economic stability in 2021 and beyond.
Governor Lowe Dismisses Attack on RBA’s Independence, Details Private Meeting with Bankers
In light of recent controversy surrounding comments made by government ministers, Governor Lowe has come out to dismiss the concerns. In a press conference earlier today, Governor Lowe stated that while some of the comments might have been ‘noisy’, they do not pose an attack on the RBA’s independence.
Regarding the private lunch with bankers that took place before the RBA’s quarterly statement release, Governor Lowe stated that he still needs to talk to people in order to protect its independent stance. He did not provide any further details about what was discussed at said meeting. However, he did state that no evidence was found linking bond yield increases during or after the lunch time discussion held.
Governor Lowe could not provide any further comment as they knew all they needed know based on their investigations thus far regarding this issue. Despite this, he reiterated his confidence in the RBA’s independence and its ability to handle macroeconomic conditions effectively.
In Conclusion
It is clear from RBA Governor Philip Lowe’s discussion that the RBA is committed to fighting inflation and protecting the savings of Australians. With its focus on keeping interest rates low, creating jobs, and providing repayment plans for those with fixed-rate mortgages, the RBA has shown itself to be a responsible steward of the economy. Additionally, Governor Lowe’s dismissal of an attack on its independence reaffirms its commitment to make decisions based on what is best for all Australians. As we move forward into 2021, it will be essential that everyone works together in supporting the policies set forth by the Reserve Bank of Australia. So, let us join forces with one voice and take action now!
