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Reserve Bank governor Philip Lowe changes his mind on ANOTHER economic prediction

Under fire, Reserve Bank governor Philip Lowe has changed his mind about another economic forecast — this time on inflation — after falsely promising interest rates would be maintained until 2024.

Borrowers were repeatedly assured last year that cash interest rates would remain at a record low of 0.1 percent for another three years, but Russia’s war on Ukraine has seen inflation approach unprecedented levels in more than three decades.

The central bank raised interest rates again in August for the fourth straight month, pushing the spot interest rate to a six-year high of 1.85 percent, up 0.5 percentage points.

In the accompanying statement, Dr. Lowe said inflation would hit a 32-year high of 7.75 percent by the end of 2022, matching a federal treasury forecast released last week.

But on June 14, the head of the Reserve Bank told Leigh Sales, the former host of ABC 7.30, that inflation was likely to hit 7 percent this year, while inflation was still at 5.1 percent.

“Right now it’s 5 percent, and by the end of the year I expect inflation to rise to 7 percent,” he said.

‘That is a very high number and we must be able to map out a course towards 2 to 3 percent inflation.

“I am confident we can do that, but it will take time.

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Controversial Reserve Bank governor Philip Lowe has again made an outdated inflation forecast after borrowers' pledges that interest rates would remain on hold until 2024 (he is pictured at left with Susan Moylan-Coombs, the adopted granddaughter). from the RBA's inaugural Governor Nugget Coombs)

Controversial Reserve Bank governor Philip Lowe has again made an outdated inflation forecast after borrowers’ pledges that interest rates would remain on hold until 2024 (he is pictured at left with Susan Moylan-Coombs, the adopted granddaughter). from the RBA’s inaugural Governor Nugget Coombs)

“And because inflation is so high and interest rates are as low as they are, we felt it was important to take a decisive step to normalize monetary conditions and we did that at the last meeting.”

That interview with Sales came after the RBA hiked the spot rate by 50 basis points in June, which was the strongest monthly increase since February 2000.

RBA cash rates have since risen 0.5 percentage points in July and August, with the 1.75 percentage point rate hikes since May, the strongest increase since 1994.

In the period to June, inflation rose by 6.1 percent, the highest rate since 2001.

But when the one-off effects of the GST introduction were wiped out, it was the steepest consumer price index since 1990.

Both the Treasury Department and the Reserve Bank expect inflation to remain above the RBA’s two to three percent target through 2024.

As late as June 14, Reserve Bank governor Philip Lowe (pictured) told former ABC 7.30 host Leigh Sales that inflation was likely to hit 7 percent this year, while inflation was still at 5.1 percent.  He released a statement Tuesday predicting 7.75 percent inflation for the first time in 32 years in 2022

As late as June 14, Reserve Bank governor Philip Lowe (pictured) told former ABC 7.30 host Leigh Sales that inflation was likely to hit 7 percent this year, while inflation was still at 5.1 percent. He released a statement Tuesday predicting 7.75 percent inflation for the first time in 32 years in 2022

But last year, Dr. Lowe in several monthly statements that the cash interest rate would not rise “at the earliest” until 2024.

What the big banks are predicting NOW

WESTPAC: 3.35 percent spot interest by February 2023

This includes increases of 50 basis points in August and September and increases of 25 basis points in October, November, December and February

ANZ: 3.35 percent spot interest by November 2022

This includes increases of 50 basis points in August, September, October and November

COMMON BANK: 2.6 percent cash rate in November

This includes rate hikes of 50 basis points in August and September and a rise of 25 basis points in November

NAB: 2.85 percent spot interest in November

This includes a 50 basis point increase in August and September and a 25 basis point increase in October and November

Source: RateCity

As late as October, Dr. Lowe delivered on this promise, despite inflation rising 3.8 percent in the year to June 2021 — a level above the 2 to 3 percent target.

“It will not raise the spot rate until actual inflation is sustainably within the target range of 2 to 3 percent,” he said.

“The central scenario for the economy is that this condition will not be met before 2024.

“To meet this condition, the labor market must be tight enough to generate wage growth materially higher than it is today.”

The latest 0.5 percentage point increase in RBA cash interest will add $169 to an average mortgage of $600,000, with repayments on a Commonwealth Bank variable loan rising to $2,827 from $2,658.

dr. Lowe said the RBA now had a “high priority” in bringing inflation back within the target of two to three percent, while the unemployment rate is now at a 48-year low of 3.5 percent.

“The road to achieving this balance is narrow and shrouded in uncertainty, not least because of global developments,” he said on Tuesday.

The outlook for global economic growth has been revised downwards due to pressures on real incomes from higher inflation, monetary policy tightening in most countries, the Russian invasion of Ukraine and Covid containment measures in China.

dr. Lowe made his June inflation forecast after Russia’s invasion of Ukraine had already pushed the average gasoline price above $2 a liter, while his 2021 pledge to keep the cash rate at a record low of 0.1 percent through 2024 before the war in Eastern Europe.

Warwick McKibbin, who served on the RBA board from 2001 to 2011, said it was unfair to Dr.  Blaming Lowe for failing to predict unexpected supply shocks when he made conditional promises to keep the cash rate on hold last year

Warwick McKibbin, who served on the RBA board from 2001 to 2011, said it was unfair to Dr. Blaming Lowe for failing to predict unexpected supply shocks when he made conditional promises to keep the cash rate on hold last year

Warwick McKibbin, who served on the RBA board from 2001 to 2011, said it was unfair to Dr. Blaming Lowe for failing to predict unexpected supply shocks when he made conditional promises to keep the cash rate on hold last year.

“The reason they were wrong was not because they were necessarily in the wrong frame,” he told the Daily Mail Australia.

“It was because there were some pretty big shocks, like the war in Ukraine, that really propelled the supply-side shocks into the system.

“In October, no one would have known what the world would look like in 2022.”

Nevertheless, Professor McKibbin, the director of the Australian National University’s Center for Applied Macroeconomic Analysis, said the RBA made a mistake by waiting for wages to rise before raising cash interest rates in May for the first time since November 2010. .

The major banks expect another rate hike of 50 basis points in September, bringing the cash interest rate to a seven-year high of 2.35%.  ANZ (Sydney branch pictured) expects high yield of 3.35 percent in 10 years by November

The major banks expect another rate hike of 50 basis points in September, bringing the cash interest rate to a seven-year high of 2.35%. ANZ (Sydney branch pictured) expects high yield of 3.35 percent in 10 years by November

“I have already argued for tariffs to rise in the middle of last year,” he said.

“To make a statement that he had to wait for wages to change, if there was a war in Ukraine, that would cause inflation too – of course, that’s not on the horizon until it happens.

“So the uncertainty just isn’t communicated well enough.”

The major banks expect another rate hike of 50 basis points in September, bringing the cash interest rate to a seven-year high of 2.35%.

ANZ expects a high interest rate of 3.35 percent in 10 years in November, while Westpac has it in February 2023.

The Commonwealth Bank has a cash interest rate of 2.6 percent in November, while NAB predicts a peak of 2.85 percent for that month.

Treasurer Jim Chalmers, who has the authority to appoint an RBA board member, announced a wide review at the Reserve Bank last month.

What a 0.5 percentage point rate hike means in August

$500,000: $141 up from $2,215 to $2,356

$600,000: $169 up from $2,658 to $2,827

$700,000: $197 up from $3,101 to $3,298

$800,000: $225 up from $3,544 to $3,769

$900,000: $253 up from $3,987 to $4,240

$1,000,000: $281 up from $4,430 to $4,711

Increases based on the Reserve Bank’s spot rate rise from 1.35 percent to 1.85 percent, with the popular Commonwealth Bank floating rate from 3.39 percent to 3.89 percent

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