Philip Lowe, the governor of the Reserve Bank of Australia (RBA), advised Australians to prepare a mortgage payment buffer in case interest rates inevitably rise.
“Interest rates will go up. We need to be prepared for that and people need to have a buffer,” Rowe told the National Press Club on Wednesday in response to a question. “One of the things I think is that interest rates will go up. I don’t know one day, but they will go up.”
He said positively that many households are already paying more than they need to, and that faster progress towards full employment and economic improvement means interest rates will rise faster.
But Rowe was most surprised that the market was setting prices for some rate hikes following interest rates from the United States.
“But our inflation rate is half that of the United States, and labor cost growth is half that of the United States,” he said. “That’s what I’m still a little surprised at.”
In his speech 1 year aheadRowe focused on inflation, monetary policy outlook, and economic forecasts.
He said the RBA’s decision to end the bond purchase program on Tuesday does not mean an imminent rise in Australian interest rates, despite what happened in other countries.
“This … reflects their current situation and is quite different from ours,” Rowe said.
Inflation in Australia recently reached 3.5%, but is still well below 7% in the United States, 5.4% in the United Kingdom and 5.9% in New Zealand.
“These are important differences. Low inflation and low wage growth are the main reasons why we don’t have to keep pace with others,” Rowe said.
He also agreed with Scott Morrison’s recent forecast that unemployment rates below 4% are “in line of sight” after dropping to 4.2% in December.
“Our core forecast is that the unemployment rate will drop to about 3.75% by the end of this year and remain at this rate throughout 2023,” said Lowe. “If this happens, it will be an important achievement.”
“Australia hasn’t experienced such a low unemployment rate in the last half century. The last time the unemployment rate fell below 4% was in the early 1970s.”
Another discrepancy between the United States and the United Kingdom was the rising labor force participation rate in Australia. Underemployment has also fallen to its lowest rate in 13 years.
“In Australia, the proportion of working-age Australians has never been higher than it is now,” Rowe said.
In answering questions about the current need for expanded monetary policy, Rowe said there was now a unique opportunity to get people to work and grow their income rapidly.
“And we can do that without risking unacceptable inflation. The board has determined that there are appropriate trade-offs,” he said.
However, there are many uncertainties that remain in both supply and demand aspects of inflation and wage growth.
The RBA is uncertain whether product demand will normalize when infection rates decline. They are also uncertain about how quickly supply and distribution issues will be resolved.
How wages respond to the current labor market experiencing a unique combination of record labor force participation, COVID-19 restrictions that prevent many from working, and the gradual reopening of borders. I also have a question.
“In addition, there is no modern experience in how labor costs change in a world where the national unemployment rate is less than 4%,” says Lowe.
“The point here is that there are many unanswered questions. You may not know the answer right away. There are many moving parts on both the demand and supply sides of the economy, and these various It will take some time for the problem to be resolved, “Raw said.