The Reserve Bank of Australia (RBA) has delivered a heavy blow to Scott Morrison’s economic credibility, raising interest rates for the first time since 2010 and the first time in an election campaign since 2007.
The RBA has lifted rates by 0.25%, to 0.35%, saying “now was the right time to begin withdrawing some of the extraordinary monetary support that was put in place to help the Australian economy during the pandemic”.
The increase in rates — once not expected until 2024 — was driven by last week’s shock 5.1% March quarter inflation result, and the persistent increase in inflation over the past two quarters.
RBA governor Philip Lowe said in his post-meeting statement that “inflation has picked up significantly … This rise in inflation largely reflects global factors. But domestic capacity constraints are increasingly playing a role and inflation pressures have broadened, with firms more prepared to pass through cost increases to consumer prices. A further rise in inflation is expected in the near term”.
The bank expects worse inflation to come, warning that it sees “headline inflation of around 6% and underlying inflation of around 4.75%; by mid 2024, headline and underlying inflation are forecast to have moderated to around 3%”.
The decision is seriously damaging for Morrison, who has insisted his government is best placed to manage the economy despite real wage falls in recent quarters as wage growth failed to take off and prices rose. Now households with mortgages face the first of what is likely to be a year or more of interest rate increases — something no mortgage holder has seen since Julia Gillard was prime minister.
While insisting that he is not responsible for inflation and interest rate increases — claiming yesterday that interest rates were above politics and nothing to do with him — Morrison has presided over three successive budgets of massive stimulus spending; his most recent budget, in March, projected deficits from now til the mid-2030s.
Australia now joins most of the developed world in lifting rates in response to surging prices, with rate increases expected to continue until the cash rate has returned to 1.5%-2%. Lowe concluded his statement by warning “the board is committed to doing what is necessary to ensure that inflation in Australia returns to target over time. This will require a further lift in interest rates over the period ahead”.
Mortgage holders face an extended period of rising repayments, further adding to pressure on household budgets.
I think Labor is correct to keep on hammering away, about how Morrison loves to take the credit when things are going well, but inevitably tries to shift the blame, when things aren’t going well. It’s one of the more easily noticed, of his many execrable character flaws.
Exactly, you can’t really blame him for the inflationary pressures but he is being hoisted on his own petard if tries to spin both rate falls and rate rises as being good for the economy, and all due to their own good work.
Suggests the last budget from Genius (Back in black) Josh was a badly judged cash splash that will fuel inflation.
But…but…Treasury guaranteed him that adding even more stimulus wouldn’t affect inflation even a teensy weensy bit. It’s all Treasury’s fault! How can you blame poor little Josh? That’s discrimination!
Why do I get the feeling Jim Chalmers is rehearsing a reprise of Beazley’s Black Hole, this time to be known as Frydenberg’s Black Hole?
Good on Lowe! He did his job despite pressure from Scummo to delay until post-Election. Hopefully another nail in Scummo, Spudrick and Fraudandtheft’s respective coffins.
Yeah I was surprised……about time….2010….god that was before I was born
Lowe should be criticised for spruiking no interest rate rise until 2024. Last year, he had no idea what might happen so he should have kept his mouth shut.
Forecasts are exactly that, an educated guess based on the circumstances at the time. Forecasting is one thing but the entire situation is not just down to the Pandemic and Ukraine. This has been coming since they started Quantitative Easing but nobody, and I mean nobody, had any idea how it would end. Anybody with even a modicum of intelligence knows that what goes down will go up and vice versa.
As Yogi Bear told Boo-Boo, “Prediction is easy but not for the future”…
Yogi also said, “These government funded park tables and free picnic baskets are delicious Boo-Boo. Don’t forget to vote for Ranger Scott!”.
You can’t say he had “no idea”. The next rate rise wasn’t going to happen the following month and it wasn’t going to happen in 2050 so it was going to be somewhere in between. 2024 is between next month and 2050. It’s called an educated guess.
Good call there, Phil. Otherwise, one might just as well have declared the RBA, as a branch office of the PMO.
I guess the symbolism of the rate rise matters, but it’s hard to get too alarmed by it given a) interest rates are at historic low levels so any rise will still mean rates are insanely low, and b) that the cost of basic goods over the last few months is a far bigger hit to the budget than anything the banks can pass on.
Banks started raising their mortgage rates well before the RBA raise today. They see where the curve is going. Given the Governor’s statement today, this will not end well for the highly uber-leveraged property market.
Interest rates are at artificially low levels due to QE around the world.
And (Western) stockmarkets are at record highs – entirely coincidental.