Interest rates to keep rising as RBA warns it will do ‘what is necessary’ to curb inflation

Reserve Bank governor Philip Lowe says half percentage point increases to cash rate possible if economic conditions do not improve

Interest rates will be rising for the foreseeable future and the Reserve Bank of Australia will not hesitate in making higher increases than predicted if inflation does not begin to settle, the RBA governor, Philip Lowe, has warned.

Tuesday’s seventh interest rate hike saw the cash rate increase by the standard quarter of a percentage point, taking rates to a nine-year high of 2.85%, and Lowe said the RBA board would not hesitate to move to half percentage point increases if economic conditions didn’t improve.

Summer will be key, Lowe told a dinner in Hobart, where the RBA held its most recent meeting.

“The board’s base case remains that interest rates will need to go higher still to bring inflation back to target and our forecasts have been prepared on that basis,” he said on Tuesday night.

“We are not on a pre-set path, though. If we need to step up to larger increases again to secure the return of inflation to target, we will do that.

“Similarly, if the situation requires us to hold steady for a while, we will do that. Given the uncertainties regarding the outlook, we will be watching very carefully how the economy and the inflation pressures evolve over the summer.”

Lowe acknowledged the “narrow path” he said the bank was treading, as it attempted to balance rising inflation by limiting spending in the economy through the rate rises, with fears of a recession.

The bank wants to bring underlying inflation, the economic measure considered the “real” inflation figure as it excludes items with the largest price increases and falls, to between 2% and 3%. In the last Australian Bureau of Statistics CPI update, it was double that, at 6.1%.

Until that number begins to drop, interest rates will continue to rise.

What another 25bp in RBA rate rises would look like (assuming the banks pass it onto mortgage holders in full). Source: RateCity

— Peter Hannam (@p_hannam) November 1, 2022

“I would like to take the opportunity to assure you that the board is resolute in its determination to return inflation to the 2% to 3% target range,” Lowe said.

“We will do what is necessary to achieve that. At our meeting today we discussed the damage that high inflation does to people; it is a scourge. High inflation devalues your savings. It worsens inequality in our society and it undermines our living standards.

“It hurts us all by impairing the functioning of our economy. It is for these reasons that the Reserve Bank board will make sure that this episode of high inflation is only temporary.”

Rising interest rates have already had an impact on the amount of mortgage stress Australians are feeling, particularly those who bought at the peak during the pandemic, when prices soared.


Amy Remeikis

The GuardianTramp

Related Content

Article image
Hold or hike? Economists divided on whether RBA will raise interest rates for 11th consecutive time
Mixed data and international developments leave monetary experts unclear on Reserve Bank’s cash rate decision for April

Peter Hannam Economics correspondent

03, Apr, 2023 @3:00 PM

Article image
Philip Lowe leaves clues his rate-rising work may be done – bar an Easter finale | Peter Hannam
The RBA governor has ditched his hawkish tone and the odds now seem to favour just one more rise, probably in April – but that could change

Peter Hannam

07, Mar, 2023 @2:00 PM

Article image
Can Labor provide cost-of-living relief without feeding inflation and interest rates? An expert panel responds
Anthony Albanese says the government can’t afford to provide energy payments or other relief because to do so would put even more pressure on the RBA to raise interest rates – is he right? Three economists have their say

John Quiggin , Angela Jackson and Stephen Koukoulas

04, Nov, 2022 @7:00 PM

Article image
RBA governor warns at least two more interest rate rises needed to combat ‘scourge’ of inflation
Philip Lowe admits ‘the magnitude of the pickup in inflation has come as a surprise to everyone’

Peter Hannam

08, Sep, 2022 @3:29 AM

Article image
A singular focus on interest rates, fresher board, fewer meetings – but what else could change at the RBA?
The Reserve Bank overhaul won’t fix mistakes of the past, but that’s not the point, analysts say

Peter Hannam

20, Apr, 2023 @3:00 PM

Article image
More light and less heat would be appreciated at Philip Lowe’s next grilling on Friday
Lost in the questioning from hostile senators was much insight into why the Reserve Bank wants to keep raising rates

Peter Hannam Economics correspondent

15, Feb, 2023 @2:00 PM

Article image
Four questions Philip Lowe and the RBA need to answer over interest rates
Further rate rises, Reserve Bank strategy, transparency and whether to extend Lowe’s term are likely to come under scrutiny

Peter Hannam

13, Feb, 2023 @2:00 PM

Article image
Inflation may now have peaked. The RBA must tread carefully | Greg Jericho
The next worry for Philip Lowe is he’ll have to apologise for raising interest rates longer than needed

Greg Jericho

30, Nov, 2022 @2:00 PM

Article image
Interest rates: RBA weighs up risk of ‘climb shock’ ahead of decision
Economists split on how much Reserve Bank will lift cash rate on Tuesday as it looks to rein in inflation

Peter Hannam

06, Jun, 2022 @6:42 AM

Article image
Australian borrowers hit again as RBA raises interest rates by 25 basis points to 2.85%
Reserve Bank raises rates for seventh time in attempt to bring inflation under control

Peter Hannam and Katharine Murphy

01, Nov, 2022 @3:37 AM