Mortgage holders have been put on alert by a strong message from the Reserve Bank of Australia (RBA) that higher interest rates will remain as long as inflationary pressures persist.
Gov. Michelle Bullock faced tough questions Friday during a scheduled appearance before the Standing Committee on the Economy, where she linked government spending to the recent rise in inflation.
In a heated round of questions, Bullock pushed back on criticism of the bank’s handling of high inflation, just two days after raising rates for the first time in more than two years.
“We need to ensure inflation is low and stable so that households and businesses can plan, invest and create jobs,” Bullock said.
“I recognize the challenges that the cash rate increase will bring to Australians with mortgages, but it is the right thing for the economy as a whole,” she said.
More rate hikes are now widely expected by the markets, with Ms Bullock confirming that central forecasts are “highly uncertain”.
Key during the three-hour appearance was Ms Bullock’s acknowledgment that government spending is part of the bank’s aggregate demand concerns.
Backed into an uncomfortable corner by Liberal MP Simon Kennedy, Ms Bullock said government spending as a key component of aggregate demand was putting too much pressure on the economy.
More cash rate increases from the RBA could hit homeowners hard. Photo: NewsWire/John Appleyard.
“Government expenditure is part of total expenditure and total aggregate demand in the economy. Together with private expenditure, it contributes to aggregate demand,” she said.
Treasurer Jim Chalmers has pushed back on claims that government spending is behind rising inflation this week, with the Liberal Party quick to play political football with the rate hike.
Nevertheless, the governor did not want to be drawn into political discussions during the fiery interrogation.
Treasurer Jim Chalmers. Photo: Martin Ollman
“Fiscal policy decisions are decisions for the government, for parliament, and not for the Reserve Bank,” she said.
“If we have to raise interest rates to slow demand growth, then that is what we will do.
“We are just focused on bringing inflation back within the target range and having as strong a labor market as we can get.”
This article first appeared on Mortgage Choice and is republished with permission.
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