RBA: Recession risk downplayed despite interest rate rise concerns


Finance Minister Katy Gallagher has downplayed fears Australia is hurtling towards a recession after the Reserve Bank foreshadowed more interest rate pain in the coming months.

The central bank hiked the cash rate for the 12th time since May last year to 4.10 per cent – the highest level since April 2012 – when the board met on Tuesday.

The move caused Commonwealth Bank chief economist Gareth Aird, who had forecast the central bank would keep rates on hold, to warn the “risk of a hard landing for the economy has grown”.

“The chances of ‘keeping the economy on an even keel as inflation returns to the 2-3 per cent target range’ have been further diminished,” he said.

Speaking with the ABC, Ms Gallagher said the government was expecting the next 18 months to be “pretty hard” but shot down fears of a looming recession.

“That’s not the Treasury forecast and that’s not the forecast of the independent Reserve Bank. They talk about a narrow path, obviously, and that’s a matter for them, but that’s not Treasury’s advice to us,” Senator Gallagher said.

She said the government had forecast a slow down in the economy in its October budget.

“I don’t think that view has changed. We’ve got a lot of good things going for us still here in Australia that separates us from some of that global uncertainty. We’ve got an unemployment rate still with a 3 in front of it. We’re getting good prices for the things we sell,” Senator Gallagher said.

Since May 2022, the RBA has aggressively raised rates from a record low 0.1 per cent in a bid to curb inflation.

Monthly figures released by the ABS last week show the annual inflation rate jumped from 6.3 per cent to 6.8 per cent in April. Inflation remains well above the bank’s target range of 2 to 3 per cent.

In a statement after the rate rise, governor Philip Lowe warned that the RBA could lift rates again to tame inflation.

Mr Aird said a reference to “upside risks” in Dr Lowe’s statement gave the impression the central bank raised the cash rate in response to the Fair Work Commission’s decision to increase minimum award wages by 5.75 per cent on July 1.

“I think for political reasons, they (the RBA) didn’t reference that Fair Work Commission decision explicitly,” the CBA chief economist told ABC Radio on Wednesday.

“Reading between the lines, that’s what we think they moved off.”

It comes as the opposition amps up the pressure on the government over its most recent budget, arguing that it added fuel to the inflationary fire.

“What do you expect if you have a higher spending budget? It’s an indicator to the Reserve Bank that you have got one foot on the accelerator with your budget and one foot on the break with the RBA and interest rates,” opposition finance spokeswoman Jane Hume told Seven.

“The RBA governor said that this budget was neutral, but you don’t want a neutral budget when you’ve got a contractual monetary policy.”

But Senator Gallagher said the government had the balance right.

“We had to calibrate it to the economic circumstances at the time,” she told the ABC.

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