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Australia’s central bank governor, Phillip Law, told the public that rising interest rates are unlikely to cause Australia to experience a recession.
He also does not expect the Reserve Bank of Australia (RBA) to follow the US Federal Reserve as it raises its cash rate by 0.75% at a time to combat inflation.
At an event in Sydney on June 21, the Governor said the Australian economy still had many positive factors, including low unemployment, strong households and record trade performance. ..
“So we don’t see a recession on the horizon,” he said.
“But if you’ve taught us something in the last two years, you can’t rule out anything.”
Regarding the rate of increase in interest rates, Mr Rowe said inflation has risen significantly higher than previously expected and the RBA Board has decided to choose 0.5% at its June meeting.
“We hope that the same discussion will take place at the next meeting (July),” Rowe said.
At the same time, the RBA Board said it would ensure that inflation returned to the 2-3 percent target band, warning Australian households to prepare for further rate hikes.
In addition, Mr Rowe said global events have boosted domestic inflation, but more and more domestic factors are having an impact.
Meanwhile, the RBA forecasts inflation to peak at around 7% in the December quarter, up from the previous forecast of 6%.
“High inflation damages the economy, reduces the purchasing power of people’s income, and devalues people’s savings.” Rowe said..
In the last two months, the RBA has raised its cash rate by a total of 0.75%, with a 0.5% increase in June being the largest increase since February 2000.
Economists expect the July cash rate to rise another 0.5% to 1.35%.
Despite financial market pricing at a cash rate of 4% by the end of 2022, Rowe did not expect such a situation to occur.
“But we need to be careful because the market is better at determining where interests are heading than in the last few years,” he admitted.
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Alfred Bui is a Melbourne-based Australian reporter with a focus on local and business news. He is a former small business owner and holds two master’s degrees in business and business law. Contact him at [email protected].
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