The Reserve Bank of Australia’s governor Philip Lowe will face the Senate estimates committee this morning and is due to be grilled about interest rates.
RBA governor Philip Lowe has said the central bank may not be done with interest rate rises.
When the bank board lifted the cash rate to 3.35 per cent last week, it warned more rises were likely.
Financial markets now expect the cash rate to hit 4.1 per cent by August.
“There is a risk that we have not yet done enough with interest rates and spending is more resilient, and that inflation stays high,” Lowe said.
Inflation is currently 7.8 per cent, and the Reserve Bank wants it to be between 2-3 per cent.
Lowe explained why high inflation is bad:
If inflation stays high, it’s very damaging for the economy. It worsens income inequality. It makes it harder for businesses to plan, and erodes the value of people’s savings.
It’s corrosive to the economy and all the evidence is that if inflation stays high for too long, expectations adjust and that ultimately leads to higher interest rates and more unemployment.
It’s on 30 years since we had higher inflation, and many people have forgotten the really serious damage that does to people, to livelihoods, the functioning of the economy if it persists. And it leads to higher interest rates, and more unemployment, and we really want to avoid that.