Reserve Bank warns over interest rates but says jobs boom will look like the 1970s
Australians have been warned that a tangible increase in wages and official interest rates are off the table for now, but unemployment levels will look like the heady days of the early 1970s and inflation would be tamed.
Reserve Bank of Australia Governor Philip Lowe. (Photo: AAP Image/Joel Carrett)
But in his last public address of the year, Reserve Bank Governor Philip Lowe warned home buyers that the bank’s goal was to get interest rates up over time.
“If we’re successful, interest rates will go up. People borrowing today need to remember that,” he said.
However, he also said it was still plausible that the first increase in the cash rate would not be before 2024, but a faster rise in inflation could mean a hike would occur earlier.
However, some economists have warned that banks could lift mortgage rates next year, regardless of any action by the RBA.
Lowe’s comments were aimed at those caught in a dramatic escalation of house prices which has led to rises of more than 20 per cent this year.
His central message was that Australia was emerging successfully from the Covid lockdowns and had sidestepped “a perfect storm of sorts” that had impacted the major economies. It consisted of very strong demand combined with a restricted capacity to produce the goods which had led to inflation, particularly in the US.
But even that perfect storm is starting to calm and “most central banks and international organisations have concluded that the increase in inflation is likely to be only temporary”.
“We are expecting the (Australian) recovery to continue and the unemployment rate to trend lower, reaching 4 per cent by the end of 2023. The last time the unemployment rate was lower than this was in the early 1970s,” he said.
“Over the past 50 years, an inflation rate in the twos and an unemployment rate in the fours would have been considered very good outcomes. We need to remember, though, that we are in this place only because of extraordinary policy support.
“Over time, as a country, we will need to refocus on the underlying drivers of growth in the economy and jobs.”
Lowe said that the official cash rate, which is the benchmark for mortgages would not increase until inflation was sustainably in the target range.
While admitting it was hard to precisely define what ‘sustainably in the target range’ meant, he said the RBA wanted to be well within the 2–3 per cent range and have a reasonable degree of confidence that it will not fall back again.
It was forecast to reach the middle of the target by the end of 2023 and “it is still plausible that the first increase in the cash rate will not be before 2024”.
