The country’s most powerful banker, with a seven-figure salary, says she understands Australians are having a tough time as new figures show mortgage holders are suffering the most from the cost of living crisis.
Reserve Bank Governor Michele Bullock said Tuesday that a rate cut was unlikely over the next six months.
“I understand this is not what people want to hear,” he told reporters in Sydney.
But the woman in her sixties, who earns $1.09 billion in retirement and has been employed by the Reserve Bank since 1985, said she understood that people were struggling financially as a result of her rate rises.
Her pay rose from $817,800 in September last year when she was promoted from lieutenant governor to become the first woman to lead the RBA.
She was sitting at the board table, as governor or deputy governor, when the RBA raised rates 13 times in 2022 and 2023.
This has led to a 68 percent increase in monthly mortgage payments, meaning someone paying an average loan of $600,000 is paying $18,744 more per year.
“I know there are many households and small businesses that are struggling with current interest rates; many people are struggling and we are very aware of that,” he said.
Reserve Bank Governor Michele Bullock said Tuesday that a rate cut was unlikely over the next six months.
“We cannot allow inflation to get out of control: it affects everyone, particularly those on lower incomes, so we must stay on track to bring it down.”
Baby boomers are the least affected by the cost of living crisis, with new data from the Australian Bureau of Statistics showing the cost of living for those in receipt of superannuation rose 3.7 per cent in the year to June.
This figure was below the general inflation rate of 3.8 percent, and the generation born between 1946 and 1964 was more likely to qualify for retirement and more likely to retire.
By comparison, employee living costs rose 6.2 percent as the younger generation struggles with rising mortgage or rent payments.
This means that the older generation, struggling to reduce living costs, continues to spend, while younger borrowers and renters cut back on spending, only to keep inflation high.
There is unlikely to be any easing from the most aggressive rate rises in a generation before Christmas as the Reserve Bank declared inflation was still too high as it left the cash rate unchanged at a 12-year high of 4.35 per cent.
“Given what we know right now, short-term interest rate cuts are not on the agenda,” Bullock said.
But Ms Bullock admitted there were dangers of unemployment rising too much if rates remained high for longer.
“We are concerned that if certain things happen and the economy slows down more quickly, more people will lose their jobs; that is not good for people either,” he said.
The Reserve Bank also published new forecasts on Tuesday showing headline inflation, also known as the consumer price index, will not fall within its 2 to 3 percent target until December 2026, a year later than previously anticipated.
Another rate hike is not ruled out.
“The data have reinforced the need to remain vigilant against upside risks to inflation and the board is not ruling anything out,” the RBA statement said.
‘Policy will need to be sufficiently restrictive until the board is confident that inflation is moving sustainably toward the target range.’
Westpac chief economist Luci Ellis, a former deputy governor of the Reserve Bank, said the bank would now have to reassess its forecast for a rate cut in November.
“Given that the Board of Directors apparently sees no way to cut rates this year, our expectation of a rate cut in November is unlikely to be realized,” he said.
The Reserve Bank, under Bullock and her predecessor, Philip Lowe, has embarked on the most aggressive interest rate rises since the late 1980s, when baby-boom borrowers paid 18 percent interest rates but on homes that were much cheaper relative to their incomes.
But the $1.09 billion-plus earner, who has been employed by the Reserve Bank since 1985, said she understood what it was like to struggle financially (pictured is Brisbane’s Queen Street shopping centre).
But this aggressive approach to tightening monetary policy led to a recession in 1991.
AMP chief economist Shane Oliver fears the Reserve Bank could repeat the mistakes of 35 years ago and be forced to cut rates before February 2025.
“There is a growing risk that rate cuts could come sooner if equity markets continue to fall sharply and economic data increasingly warn of a high risk of recession,” he said.
‘In terms of what the RBA should do as opposed to what we think it will do, given the US experience it should now be starting to consider a rate cut as it now risks much higher unemployment and inflation falling below target.’