Bank chief says rate rises could continue amid latest increase
economy UK

Bank chief says rate rises could continue amid latest increase

Philip Lowe, the Governor of the Reserve Bank of Australia (RBA), has delivered some bad news after stating that interest rates could continue to rise unless economic conditions improve. He said that the central bank would do whatever was necessary to bring inflation under control and suggested that half-percentage point increases to the base rate were possible.

Lowe made it clear that interest rates will continue to rise for the foreseeable future. In addition, the RBA will impose higher rate increases if necessary if inflation does not start to come down. This comes after the central bank increased the base rate again by 0.25%, which marks the seventh interest rate hike.

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Following the latest increase, the base rate is now at its highest level in nine years and stands at 2.85%. While quarter-point increases have become the standard for the RBA, there is a strong possibility that this could soon change to 0.5% hikes.

rate rises

Speaking at a dinner in Hobart, Lowe said: “The board’s base case remains that interest rates will need to go higher still to bring inflation back to target and our forecasts have been prepared on that basis. We are not on a pre-set path, though. If we need to step up to larger increases again to secure the return of inflation to target, we will do that.”

He added: “Similarly, if the situation requires us to hold steady for a while, we will do that. Given the uncertainties regarding the outlook, we will be watching very carefully how the economy and the inflation pressures evolve over the summer.”

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Lowe described soaring inflation as ‘a scourge’ and said that it could result in enormous damage for the people of Australia. However, he said the bank intended to ensure high inflation was temporary, which it would achieve partly by raising interest rates.

households

A major blow for households

The governor’s speech will come as a significant blow to vast numbers of households with variable-rate mortgages. In the past, the central bank has suggested that interest rates were reaching their peak, which will have provided some level of reassurance to borrowers. However, with indications now pointing toward further and more significant rate hikes, many people will be nervous about what the future holds for them financially.

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In September, Lowe told MPs that although further interest rate hikes would be necessary, the era of significant rate increases was coming to an end. However, his latest comments sharply contrast with what he said six weeks ago. He did say at the time that further interest rate movements would depend on whether inflation remained elevated. This could explain why the central bank is now backtracking and preparing for more significant rate hikes in the coming months.