Canberra, June 15: Governor of the Reserve Bank of Australia (RBA) Philip Lowe has warned that interest rates would continue to rise, and expected inflation to reach 7 percent by the end of the year.
Speaking on national broadcaster ABC, Lowe said Australians must prepare for substantial increases for the rest of the year.
“It’s unclear at the moment how far interest rates will need to go up to get that,” said Lowe.
In May, the RBA lifted interest rates by 0.25 percent, followed by 0.5 percent at the beginning of June, bringing interest rates above the emergency levels of the pandemic to 0.85 percent.
The aggressive push on interest rates has come in response to unexpected levels of inflation, which reached 5.1 percent in May.
“I’m confident that inflation will come down over time but we’ll have to have higher interest rates to get that outcome,” said Lowe, warning that inflation is expected to reach 7 percent before dropping in early 2023.
Lowe said the rise would put increasing pressure on Australian families, which could see increases of up to 1,000 Australian dollars on their monthly mortgage payments within the year, but added that the overall Australian economy remained resilient.
“We’re expecting the Australian economy to continue to grow pretty strongly over the next six to 12 months. There’s still a bounce-back from all the Covid restrictions.”
Head of Australian Economics at the Australia New Zealand Banking Group (ANZ) David Plank said in a Wednesday economic report that Lowe’s media appearance indicated “unusual times” and the Bank’s uncertainty around inflation.
“Inflation was characterized as ‘too high’ and likely to get to 7 percent by the end of year. He made it clear the RBA would do ‘what’s necessary’ to get inflation back to target,” said Plank.
A consumer confidence report released by ANZ on Wednesday showed that consumer confidence had dropped 7.6 percent over the last week and was now at recessionary levels.
“Outside of the pandemic, consumer confidence hasn’t been this low since January 1991, the midst of the early 1990s recession, reflecting the dire state of sentiment,” said Plank. (UNI)
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