21 February 2023

RBA governor tells estimates to expect more interest rate hikes

| Chris Johnson
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Philip Lowe at Senate Estimates

RBA Governor appearing before Senate estimates. Photo: Screenshot.

Reserve Bank governor Philip Lowe has acknowledged that rising interest rates are making it tough for many Australians right now, but he says the alternative is a weak banking system that is not in the national interest.

Appearing before Senate estimates on Wednesday (15 February), Dr Lowe said having strong banks making healthy profits was necessary for the economy.

“People are really hurting, I understand that, but I also understand that if we don’t get on top of inflation, it means even higher interest rates and more unemployment,” he told the hearing.

“The banks are profitable, it’s true. We want resilient banks. I know it’s hard for people to accept when they’re suffering. But the country is better off having strong, resilient banks that can provide the financial services that we need.”

Dr Lowe agreed that banks are slow to pass on rate rises to savings and deposit accounts, yet very quick to pass the increases on to mortgage customers.

“When we put up interest rates, the immediate effect, I think, is a boost to bank profits,” he said.

“Particularly if they’re slow in raising deposit rates, which they have been.”

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Treasurer Jim Chalmers has tasked the Australian Competition and Consumer Commission with examining why banks do not pass on interest rates to savings customers quickly – an inquiry the RBA boss supports.

The ACCC will report its findings to the government in December this year.

Asked why the RBA continues to lift the official interest rate even while the cash rate target is at its highest rate since September last year, the governor flagged more rises to come.

“I don’t think we’re at the peak yet, but how far we have to go up, I don’t know,” he said.

“I understand why some people focus on the risks on the one side, but we’ve got to be attentive to the risk from higher inflation,” Dr Lowe said.

“It’s corrosive for the economy and all the evidence is if inflation stays high for too long, expectations adjust and that leads to higher interest rates and more unemployment.

“The risks are two-sided and we’re trying to navigate our way through a narrow path.”

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Inflation is currently at 7.8 per cent, well above the RBA’s target of 2 to 3 per cent.

Unemployment must rise before inflation falls, he said.

Dr Lowe was criticised by the estimates committee for not delivering a public address following last week’s interest rates increase. He did, however, give a private briefing to major bank traders.

In 2021, the RBA governor said rates were not likely to increase before 2024, yet the official cash rate has jumped 3.25 per cent since May last year.

Committee members of all political persuasions took the governor to task over the RBA’s aggressive rising of interest rates, suggesting the bank could send the economy into recession.

Dr Lowe pointed out that there were nine members of the RBA board making “unpopular” interest rate decisions.

While insisting he wasn’t not complaining, he said he found it “a bit unfair” that all of the criticism was directed at him.

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They want us to spend less but force us to pay more in interest to the banks.

Good thing Albo increased the minimum wage 😂

Wouldn’t put it past them to try and print more money next

Ross of Canberra6:29 pm 16 Feb 23

“strong banks making healthy profits was necessary for the economy”
Philip, surely this is naive and supportive of just one class.

GrumpyGrandpa6:20 pm 16 Feb 23

What a cop out; the
Treasurer tasking the ACCC to examine why banks do not pass on interest rates to savings customers quickly. I’m sure anyone with a mortgage would query Dr Chalmers’ priorities.

There are two ways of lowering inflation; cranking up interest rates and by reducing Government spending. Both reduce the flow of money through the economy.

Rather than cutting his Government’s expenditure,
Dr Chalmers seems happy to let Dr. Lowe take the rap for the hurt. Stop spending money Dr Chalmers and you’ll reduce the necessity for Dr Lowe to hit mortgage holders as hard.

devils_advocate11:45 am 17 Feb 23

“There are two ways of lowering inflation; cranking up interest rates and by reducing Government spending. Both reduce the flow of money through the economy.”

Neither of these work to control “cost push” inflation – increases in the price of imported goods or goods that are sold at an international market price. See further: oil price shocks

Meanwhile, the Commonwealth Bank has just posted a record half-year cash profit. https://www.commbank.com.au/articles/newsroom/2023/02/cba-half-year-23-results.html

Anyone paying attention knew this was going to be a result of lockdowns. The economy is people’s lives too.

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