The country’s most powerful banker has come under fire from a senior Albanian government minister after warning that households may have to “sell their houses” amid the cost of living crisis, while killing any hopes of an imminent bank cutback.
Reserve Bank Governor Michele Bullock said aggressive rate rises and cost-of-living pressures were now forcing more people to make tough choices.
“Even though this group is quite small overall, those in it have had to make quite painful adjustments to avoid falling behind on their mortgage payments,” he told the Australian Business Economists Luncheon in Sydney on Thursday.
‘This includes things like cutting back on essential items, opting for lower-quality goods and services, dipping into savings or working overtime.
‘Some may ultimately have to make the difficult decision to sell their homes.’
But Education Minister Jason Clare criticised her comments on Friday morning.
“I don’t want anyone to have to sell their house. It’s easy to say ‘look, people may have to sell their house’, but not if it’s you, not if your life’s work is saving up for a deposit and buying a house,” she told Sunrise.
‘That’s why we need to reduce inflation, and if we reduce it, it will be easier for the Reserve Bank to cut interest rates.
Reserve Bank Governor Michele Bullock has come under fire after warning that households may have to “sell their houses” due to rising interest rates.
Education Minister Jason Clare criticised the comments, saying: “I don’t want anyone to have to sell their house. It’s easy to say ‘people might have to sell their house’, but not if it’s you, not if your life’s work is saving up for a deposit and buying a house.”
‘Tax cuts are important, as are wage increases. That helps people pay their bills and their mortgage.
He also sent a message to Australia’s major banks, urging them to step up their efforts and help Australians struggling to keep up with their mortgage payments.
”Banks play an important role when their customers have difficulties paying their mortgage, providing them with support and flexibility to pay their mortgage.”
In her speech, Bullock noted that low-income households and renters were most vulnerable to rate increases.
“Lower-income households tend to spend a larger share of their spending on essential items, including food, utility bills and rent,” he said.
‘The experience of individual households varies widely, but younger households and lower-income households have been particularly affected by general cost-of-living pressures.
‘Mortgage holders are feeling the pressure on their cash flows not only from high inflation, but also from the rise in interest rates that has occurred in response to it.’
However, Ms Bullock has ruled out any rate cuts before Christmas.
“Circumstances can change, of course, and if economic conditions do not evolve as expected, the board will respond accordingly,” he said.
‘But if the economy broadly evolves as anticipated, the board does not expect to be in a position to cut rates anytime soon.
We need to see the results in inflation before we can do that.
“If we don’t get inflation down, it’s going to be bad for everybody, absolutely everybody. So that’s the task I’m focusing on. That’s the task the board is focusing on. I think the board believes that, at this point, we’re still on that narrow path.”
The RBA’s cash rate held at a 12-year high of 4.35 per cent last month and relief is unlikely soon after 13 rate hikes in 2022 and 2023.
The most aggressive hikes since the late 1980s are already taking a toll on the economy; the 1 percent growth rate in the year through June is the weakest since the 1991 recession, outside of a pandemic.
Treasurer Jim Chalmers said on Sunday that rate rises were “wrecking the economy” and reaffirmed his stance on Wednesday, saying national accounts data had “confirmed” his point.
The RBA boss has denied Opposition Leader Peter Dutton’s suggestion that they were at war.
“He’s doing his job and I’m doing mine,” he said. “I wouldn’t use those kinds of words.”
But Ms Bullock said state and federal governments needed to focus on reducing inflation, after suggesting in June that “recent budget outcomes may also have an impact on demand”.
“The federal government and the treasurer said several times that they were doing their part to try to reduce inflation,” he said.
‘All governments are aware of this because, frankly, all their constituents are suffering from high inflation.’
Ms Bullock said failing to address high inflation now will simply lead to even higher unemployment in the future.
“High and variable inflation can also cause changes in people’s wealth and purchasing power,” he said.
‘Agreeing to a new contract or making savings plans is harder if you don’t know how expensive things will be in the future.
‘Moreover, high inflation eventually requires disinflation, which can have lasting costs for households through higher unemployment.’
Inflation hit 3.8 percent in June and the Reserve Bank does not expect the annual consumer price index to fall within its 2 to 3 percent target until the end of 2025.
Unemployment rose to a two-year high of 4.2 percent in July and the RBA forecasts it will rise to 4.4 percent by the middle of next year.
