The premiers of Australia’s three biggest states have taken aim at the RBA over rapidly rising interest rates, following Tuesday’s decision to impose another hike.
The Reserve Bank surprised markets, and many Australian observers, on Tuesday with its decision to lift the official cash rate to a decade-high 3.85 per cent.
The move added another $78 to monthly repayments on a $500,000, 25-year loan – on top of more than $1000 since the bank began jacking up rates last May.
It is the most rapid rise in official interest rates in a generation, and comes off the back of record lows during the pandemic.
Amid rising concerns that the rapid rise in rates causing financial pain for many borrowers, the Victorian and NSW Premiers took aim at the central bank on Wednesday – in a move that is likely to ramp up the pressure on federal Treasurer Jim Chalmers.
“I think that having a proper conversation with the federal Treasurer is what the Reserve Bank should be doing. Not necessarily just continually hiking interest rates,” Victorian Premier Daniel Andrews said on Wednesday.
“I’m not sure that 11 interest rate rises in 12 months is smashing inflation. I’m certain it’s smashing families. So again, I don’t know that pulling this lever is necessarily delivering the outcome that the bank wants, and that’s to get inflation under control.”
Later on Wednesday, NSW Premier Chris Minns said he was “very concerned” about the financial burden of recent rate rises on families, and queried whether the RBA board was “actually fulfilling their remit”.
“I’m very concerned that 11 interest rate rises is putting enormous pressure on household budgets and we need to make sure that the intent of reserve banks and central banks in particular are actually fulfilling their remit and their mandate,” he said.
“I know many people are doing it tough. It’s everyone’s responsibility to put downward pressure on inflation.
“We want to be a government that has as a focus household bills in particular, because we can’t have a situation where businesses close and further pressure is put on households and regular people, ordinary people in NSW, can’t meet their financial obligations.”
Queensland Premier Annastacia Palaszczuk also spoke out. She said she was worried the “continual increases are having a big impact on cost of living pressures for families”.
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RBA boss defends rate hikes
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RBA governor Philip Lowe has defended the rate of increases. At an event in Perth on Tuesday night – hours after the bank’s May rate rise was confirmed – he said he was confident he could deliver a soft landing for the economy after the board pulled the trigger on another interest rate hike.
Asked if the central bank was playing “recession roulette” by hiking rates again, he told the RBA board dinner the “narrow path” to dodge a recession “wasn’t getting any narrower” but there was still uncertainty clouding the outlook.
“The peak in inflation in Australia is now behind us,” Dr Lowe said.
“But that has not changed our view that it will be some time before inflation is back in the target range.”
Based on current forecasts that will be mid-2025, which is longer than other nations in an effort to preserve recent jobs growth, Dr Lowe said.
“We can only do this if people believe that inflation is going to come down, and that partly underpins our decision today,” he said.
“The rate rise today … is because we want to bring inflation down. We’re deadly serious about it and we will do what’s necessary.”
Also on Wednesday, Dr Chalmer’s said Tuesday’s rate rise had surprised markets, with the benchmark S&P/ASX200 index plunging 0.8 per cent in the three minutes after the central bank’s announcement.
Asked if the hike also blindsided the government as he put the finishing touches on the federal budget, Dr Chalmers said he did not pre-empt or second-guess decisions by the independent central bank.
“We’ve got our own job to do and that’s my focus,” he said.
“One of the important tasks of the budget is to make sure that we can provide cost of living relief without adding substantially to the inflationary pressures in our economy.”
Meanwhile, figures released on Wednesday show that spending on non-essentials is pulling back as cost of living pressures bite.
Retail turnover figures rose 0.4 per cent lift in March, according to official Australian Bureau of Statistics. It follows a modest 0.2 per cent uptick in February.
While sales have lifted for the third month in a row, ABS head of retail statistics Ben Dorber said monthly turnover was sitting at a similar level to six months prior due to a slowdown in spending on discretionary goods.
Food-related spending drove the monthly uptick, with Mr Dorber largely chalking that up to the high food inflation.
“Businesses in cafes, restaurants and takeaway food services are passing on their rising costs to consumers through price rises, while also benefitting from strong demand driven by the continued return of large-scale cultural and sporting events,” he said.
Sales across cafes, restaurants and takeaway food services lifted 1.5 per cent, whereas food retailing lifted one per cent.
But spending on discretionary items has started to dry up in response to higher interest rates and cost of living pressures.
Clothing, footwear and personal accessory retailing fell the most, dropping 1 per cent, followed by household goods, which sunk by 0.4 per cent.
Mr Dorber said quarterly retail sales volumes, due next week, would shed light on how high inflation was influencing turnover growth numbers.
-with AAP
