RBA may raise interest rates again in June! Australian Federal Reserve Governor: inflation is too high unacceptable, must take measures

Philip Lowe, governor of the Federal Reserve Bank of Australia, told federal lawmakers that the current high inflation is intolerable and the RBA will take necessary measures to reduce inflation. He emphasized that inflation and unemployment should return to the RBA’s target range. Currently, Australia’s headline inflation rate is 7%, and the RBA expects to lower it to 4.5% this year and then further to 3% by mid-2025, which is the upper end of the RBA’s inflation target range. In addition, Australia’s current unemployment rate of 3.7 per cent is expected to rise to 4 per cent by the end of this year and 4.5 per cent by June 2025.

When factoring in risks such as a global recession, Lowy appeared “less confident” or even “quite pessimistic” about being able to reduce inflation without triggering a recession. He also said Labour-backed wage hikes would cause inflation to worsen unless productivity improved. Both the Labor government and unions support linking pay rises to current inflation. This also means that the proportion of salary increases is expected to reach 7%. Lowe believes that large wage increases will exacerbate inflation. If inflation worsens further, the RBA will only continue to raise interest rates.

Lowe, who has served as RBA governor for seven years, will step down in September this year. Although the government has yet to make a decision, his chances of re-election are slim. The RBA has raised the cash rate 11 times since last May. Markets widely expect the RBA to announce another rate hike as early as the June board meeting. Lowe stressed that he cannot tolerate (high) inflation continuing, and he believes that necessary measures need to be taken.

The Reserve Bank of Australia has struggled to control inflation while balancing economic growth and unemployment. While low interest rates and massive borrowing policies have spurred economic growth during the pandemic, they have also contributed to inflation. Now the RBA needs to take steps to balance inflation and growth while avoiding a recession. This is a complex challenge that requires the combined efforts of governments, businesses and individuals.

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