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RBA’s Lowe: ‘Be prepared for more interest rate increases’

·Personal Finance Editor
·2-min read
RBA Governor Philip Lowe.
RBA Governor Philip Lowe has warned interest rates are going to keep rising. (Source: Getty)

The Reserve Bank (RBA) governor, Philip Lowe, has warned Aussies that more interest rate hikes are on the way.

Speaking to the American Chamber of Commerce in Australia, Lowe said the bank was prepared to do whatever was necessary to bring down inflation.

“The board judged that, given the inflation data and outlook … it was no longer appropriate for interest rates in Australia to remain at the COVID-emergency levels,” he said.

“The board is committed to doing what is necessary to ensure that inflation returns to the 2-3 per cent target range over time.”

Lowe said that as the central bank focused on bringing inflation back into target, Australians should “be prepared for more interest rate increases”.

“I want to emphasise though that we are not on a pre-set path,” he said.

“How fast we increase interest rates, and how far we need to go, will be guided by the incoming data and the board's assessment of the outlook for inflation and the labour market.”

This comes after the RBA hiked interest rates in May for the first time since 2010, and followed that with a massive 0.5 per cent hike in June.

Lowe said inflationary pressures - ie the rising cost of living - were growing at a much faster pace than expected and the board had to act.

“High inflation damages the economy, reduces the purchasing power of people's incomes and devalues people's savings,” Lowe said.

“It is also regressive, hurting most those who are least well equipped to protect themselves.

“So, it is important that we chart our way back to an inflation rate in the 2-3 per cent target range. We do not need to, nor can we, get there immediately.”

Lowe also issued a stark warning about learning from the past when it came to inflation pressures.

He said it would be easier for the bank to navigate the path of getting interest rates back in the target range if the psychology of Australians “does not shift too much”.

“A lesson from the 1970s is that if an inflation shock shifts people's expectations about the ongoing rate of inflation, it becomes harder to reverse,” Lowe said.

“Applying this lesson to today, it is important that the higher rate of inflation this year does not feed through into ongoing inflation expectations.

“If it did, the period of higher inflation would persist and it would be more costly to reverse.”

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