The Reserve Bank is willing to call time on Australia’s battle with high inflation at any time, yet would continue to push interest rates higher and higher if necessary, the deputy governor has warned.
Appearing on ABC’s 7:30 on Tuesday, Andrew Hauser avoided directly answering whether a rate hike later this month is inevitable, warning instead that the RBA could change tack quickly.
It comes as Australians prepare for interest rates to reach a potential 15-year high as soon as the end of this month.
Markets are pricing in a 66% chance of a rate hike on 29 September, after recent data for July showed underlying inflation had not cooled as expected when compared to June.
“Of course we could raise interest rates sharply. We could do it tomorrow, we could do it next week, we could decide to no longer take seriously the full employment part of our objective and bring inflation down come hell or high water,” Mr Hauser said.
“But it hasn’t been the board’s judgement that that is the appropriate stance.
RBA deputy governor Andrew Hauser says the bank has tough decisions ahead. Picture: Supplied
“A consequence of that is inflation has been above target for a long period of time and at some point, we will have to say ‘that is long enough’.”
Mr Hauser said the dire warning for more rate hikes could be attributed to three major risks that mean inflation could still be on the rise.
“One is the Middle East and the ongoing crisis there, one is the really unexpected global boom driven by AI, and the other is the weakness of the supply potential of the Australian economy,” he explained.
“If at some point it becomes clear we are not on a feasible path, we would take another path. We would raise interest rates further than otherwise we would need to do so.”
Further rate rises are expected to further increase cost-of-living pressures for households in the lead up to Christmas – tightening which would follow the three rate hikes seen earlier in the year.
“People want inflation down, people are furious about inflation and I understand why. It’s unfair, it hits people on low incomes, it damages price signals and it makes the job of companies difficult,” Mr Hauser acknowledged.
“What people want us to do is our job and bring inflation down. I understand that and I support that. We have to put things right. Yes we have to explain ourselves and yes we have to communicate better but if you were to give me an exchange rate and say how about you’re really, really clear and you screw up, or how about you do a great job and you’re not quite as clear, I hope that most people would say first and foremost, I want you to do your job.”
Inflation is due to be back within the Reserve Bank’s 2-3% target rate by the end of next year – a lengthy but slightly improved forecast on what had been laid out in the bank’s May figures.
“It is quite a long and extended period but the reason we as a board have chosen to take it slowly is to preserve as many of the gains to jobs we could,” Mr Hauser said.
“The point at which you particularly worry about that is when people start to lose confidence in the inflation target. I don’t think we’ve arrived at that point yet, but we are very alert to the possibility that we might.”
With confidence continuing to slide, Mr Hauser acknowledged a discrepancy between the relative positive performance of the economy with public sentiment, warning there is a long path ahead of embattled households.
“When people go to the supermarket each week, they look at the price of the goods they’re buying and compare them to where they were a few years ago.
Households are feeling the pinch of high prices. Picture: Getty
“It is a very lasting and pervasive issue that is a function of the pick-up in inflation after Covid and will take years for us to fully resolve.”
Quizzed on whether a rate hike this month is inevitable, Mr Hauser was quick to note Australia’s economy remains in a strong position when compared to equivalent nations overseas.
“In many ways, it is doing quite well. We have growth roughly on trend, we have unemployment at historic lows, employment growth, and real household incomes are growing strongly so there’s a lot to like,” he stated.
“But we have one big problem, and that’s inflation. The question for us now is have we done enough, or is more needed.
“I would love to say that there will be nothing happening between now and when the board next meet, but knowing the last 12-18 months, something will.”
The RBA board will next meet from 28-29 September. Picture: Hu Jingchen/Xinhu
Falling house prices have also added to low consumer confidence in recent months, with the property market having recorded its fifth straight month of price falls in August, realestate.com.au data shows.
While the RBA has forecast for various situations in which up to 15% of the value of the property market is wiped, Mr Hauser said the flailing market was not a major concern for the bank.
“House prices play a role in the economy but they’re not really as big as global growth trends, productivity, and the risk environment globally in the Middle East,” he said. “It’s only part of the story.”
The RBA will make the next rates decision on 29 September. Westpac, ANZ, Commonwealth Bank and National Australia are all currently forecasting a rate hike before the end of the year.