The Reserve Bank governor says he’s not declaring victory in the war on inflation just yet, and denied that he’s engaged in a scare campaign on interest rates.
Appearing before a Senate estimates hearing on Wednesday morning, Philip Lowe said he is acutely aware of the unpopularity of the central bank’s aggressive tightening of the cash rate in a bid to curb “persistent” inflation.
But the RBA boss warned the bank may need to increase rates further depending on what happens in the global economy, consumer spending, inflation expectations and productivity growth.
“I know the higher interest rates at the moment are very unpopular and are hurting people. I know it’s really tough. But, you know, the board discussions think of the alternative,” he said.
“If we had not increased interest rates … inflation will be higher for longer.
“So what we’re doing now is difficult but it’s necessary to avoid more pain and even higher interest rates later on.”
The bank has lifted the cash rate at 11 of its past 12 meetings, pushing it from a record low 0.1 per cent to 3.8 per cent in the most aggressive tightening cycle since the 1980s.
The current headline inflation rate sits at 7 per cent, down from the 7.8 per cent peak in the December quarter.
Asked if he could declare “victory” in the battle against inflation, Dr Lowe said it would be “premature”.
“We are not going to declare victory until victory is achieved,” he told the parliamentary committee.
A success for the RBA would be inflation returning to its target range of 2 to 3 per cent. He said the bank forecasts that to occur by mid 2025.
Dr Lowe stressed he wasn’t engaging in a “scare campaign” but he just wanted Australians to understation the “genuine risk” of high inflation.
More to come.