Treasurer Jim Chalmers has been given a stark warning by the Reserve Bank that a recession may be the only way to drive inflation out of the economy after the bank board split to support a second successive increase in official interest rates. Source: The Age.
Amid growing uncertainty over the global economy due to the war against Iran, the bank voted 5-4 to take the cash rate to 4.1 per cent in a move that will add about $100 a month to the repayments on a $600,000 mortgage.
RBA Governor Michele Bullock said while oil prices would slow the economy, inflation pressures remained elevated and would only be made worse without another rate rise to follow February’s increase.
Pressed on whether the combination of high petrol prices and two rate rises would drive the economy into a recession, Ms Bullock said that was not the RBA’s intention.
“We don’t want to have a recession, but if it’s hard to get inflation down, then, you know, we’re going to have to deal with that possibility,” she said.
Ms Bullock said while higher petrol prices would add to inflation, they were not the reason for the rate hike. But she cautioned that inflation could push even higher without action.
Mr Chalmers, who will this week deliver a major speech outlining key aspects of the Budget, said the bank’s decision was heavily affected by the war against Iran.
“The main point from this decision is that we know we had an inflation challenge already in our economy. Developments in the Middle East are already making that challenge harder, rather than easier,” he said.
But shadow treasurer Tim Wilson said Mr Chalmers had to take responsibility for its role in high inflation and the rate hikes.
Ms Bullock said the decision would be “tough news” for people with a mortgage.
Financial Counselling Australia, which co-ordinates the National Debt Hotline, said more people were seeking help, with calls to the hotline in February reaching their highest level since the depths of the pandemic.
“We’re hearing from people who are making incredibly tough decisions and it’s critical that banks and lenders respond constructively when customers ask for help,” Financial Counselling Australia chief executive Domenique Meyrick said.
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RBA warns recession may be unavoidable after raising rates again (By Shane Wright, The Age)
