RBA Governor Philip Lowe hints at higher interest rates in Australia and even MORE inflation

Interest rates will rise next year to counter rising inflation, which will make it harder for Australians looking to pay off their mortgages, Reserve Bank of Australia Governor Philip Lowe said.

Dr Lowe spoke to the National Press Club on Wednesday, a day after the first RBA board meeting of the year when he left the cash rate at a record low of 0.1% and said ended its $350 billion bond-buying program.

He called on Australians to build up financial ‘buffers’ to help them weather any future interest rate rises.

Interest rates will go up…I can’t tell you when, but they will,” he said.

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Dr Philip Lowe speaking to the National Press Club on Wednesday. He signaled that interest rates could rise in 2023 to counter rising inflation

“We need to be prepared for this and people need to have tampons.”

He said the bank would wait to see how Covid-induced supply chain issues affect prices over the next year before deciding whether to raise interest rates.

“We expect this evidence to emerge over time, but it is unlikely to do so quickly,” Dr Lowe said.

“The board is prepared to be patient as it monitors developments in the various factors affecting inflation in Australia.”

Gasoline prices have risen 32% in the past year – the biggest annual increase since 1990 – while the cost of building a home has risen 8%.

Economic experts predicted that Dr Lowe could raise interest rates by 0.1% as early as August after the bank decided to end the bond-buying program at the board meeting of Tuesday.

Australia’s most senior banker said the move did not necessarily mean the bank would hike rates, but added the RBA would do “what is necessary to keep inflation low and stable”.

“The decision to end the bond-buying program does not mean a cash rate hike is imminent,” he said.

“Although inflation in Australia has increased, it remains well below the 7% rate in the United States, the 5.5% rate in the United Kingdom, almost 6% in New Zealand and 5% in Germany.

“Our situation is quite different.”

The official policy rate has not increased since November 2010.

A rise in interest rates would make it harder for Australians looking to pay off their mortgages at a time when property prices across the country are rising sharply (File image of homes in Sydney's eastern suburbs)

A rise in interest rates would make it harder for Australians looking to pay off their mortgages at a time when property prices across the country are rising sharply (File image of homes in Sydney’s eastern suburbs)

He expects wage growth in Australia to reach 2.75% this year and 3% in 2023, from a current rate of just 2.2%.

“As I have said many times, the board will not raise the cash rate until inflation is sustainably between two and three percent,” he said.

Dr Lowe said the solution to Australia’s soaring property prices was not to raise interest rates.

“Monetary policy can’t do much…there are structural solutions. But the solution is not to raise interest rates,” he said.

“The supply of housing is fixed. Demand increases – what happens to the price? It’s rising. And there’s nothing we can do with monetary policy to compensate for that.

He said the economy had performed significantly better than expected, despite the setback from last year’s Delta outbreak.

But he said a lingering source of uncertainty is the possibility of further virus outbreaks, with the Omicron variant being a reminder of those risks.

“Before Omicron, the economy had established strong positive momentum, rebounding rapidly after the Delta restrictions eased,” Dr Lowe said.

Fuel prices have risen 30% in the past 12 months, the biggest annual rise since 1990 (pictured, a motorist fills up a petrol tank in Sydney)

Fuel prices have risen 30% in the past 12 months, the biggest annual rise since 1990 (pictured, a motorist fills up a petrol tank in Sydney)

“That momentum was not sustained in the new year, with Omicron forcing many people into self-isolation, disrupting supply chains and affecting spending as people sought to limit their activities.”

Even so, he expects the economy to grow in the March quarter.

He expects the jobless rate to drop to around 3.75% by the end of this year and stay around that rate in 2023.

“If that were to happen, it would be a significant achievement. The last time we had unemployment below 4% was in the early 1970s,” he said.


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