Economists warn that there's only a "narrow window" for the central bank to tame inflation
Australia must get inflation under control now or prepare for rate hikes spiking to near-1990s levels, according to Westpac chief economist Bill Evans.
Evans’ warning comes amid calls from housing industry leaders for the Reserve Bank to hit pause on further rate hikes. Ahead of a likely 10th straight rate hike when the RBA board meets today, economists said there is a “narrow window” for the central bank to get inflation under control, according to a report by The Australian.
With banks predicting that up to 15% of variable-rate borrowers will be tipped into negative spare cash flows, Evans told a Westpac customer briefing that the RBA was looking at a “now or never” moment to tame inflation, The Australian reported.
Prepare for further hikes
Evans said that despite some cooling in the economy, households need to prepare for more rate rises.
“They [the RBA] still realise that the biggest cost is to be caught sleeping at the wheel and let inflation get away,” he said. “And then you’ll have to go a lot harder as we had to do in the 90s. I think they will err on the side of making sure, that maybe they will overreach.”
Economists are forecasting another 25-basis-point hike today, pushing the cash rate to 3.6%, and another hike in April. Households face the possibility of up to four rate hikes by June, The Australian reported.
“It’s going to be a very tough time … there’s a lot of pain out there,” Evans said.
“Under the pump”
Treasurer Jim Chalmers, whose review of the RBA is due this month, told Parliament Monday that households and small businesses were “under the pump.” He said that cost-of-living pressures were being felt “acutely around the kitchen tables in this country” but that there were signs that inflation had peaked.
“It’s a sign of the times … that even in one of the world’s best economies, the inflationary pressures coming at us from around the world are still being felt very acutely around the kitchen tables of this country,” Chalmers said.
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Sally McManus, secretary for the Australian Council of Trade Unions, warned that a hike on Tuesday would further impact workers already hurting from higher mortgage costs. The Housing Industry Association and the Real Estate Institute of Australia have both called for a halt to rate rises.
Evans, who predicts that the cash rate will eventually hit 4.1%, said that several more rate hikes would “put more pressure” on the RBA’s modelling of potential home loan and cash flow stress, The Australian reported.
Westpac chief executive Peter King said the repeated rate hikes were “hitting some Australians really hard,” although the impact differed across the economy.
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