Dr. Philip Lowe predicted that inflation would reach seven percent by Christmas and would not begin to decline until the first quarter of next year.
Australian families are facing a year of misery, with the Reserve Bank governor warning that interest rates will rise and inflation could reach seven per cent.
Dr. Philip Lowe predicted that inflation would reach seven percent by Christmas and would not begin to decline until the first quarter of next year.
He added that the RBA would do “whatever is necessary” to deal with rising inflation and that the bank was determined to return inflation to between two and three percent.
“It’s unclear at this time how much interest rates will need to be raised to achieve this,” Dr Lowe said at 7.30am on ABC.
“I’m sure inflation will go down over time, but we’ll have to have higher interest rates to get that result.”
Dr Lowe admitted that Australian households will find it difficult to afford rising interest rates, especially at a time when food and fuel prices are rising astronomically.
Last October, the RBA said interest rates would not rise until 2024, only that the cash rate would rise by 0.5% last week.
“On an individual level, some people have taken out loans that they may not have wanted to take out in retrospect, but the big picture, which is really the focus of the Reserve Bank, is a pretty resilient economy,” Lowe said.
“Sometimes my comments are interpreted as making a promise, or a very strong statement, that interest rates would stay where they were until 2024. In our own communication, in our way of thinking, it was very much a conditional statement.
“The economy did not evolve as we expected, it has been much more resilient and inflation has been higher and we thought we had to respond to that.”
Dr. Lowe now believes that inflation will peak at around seven percent in December this year, “and when we get to the second half of next year, inflation will clearly go down.”
Despite all the sadness and sadness, the RBA governor insisted that the Australian economy will grow “quite strongly” over the next year as spending increases due to the Covid pandemic.
Meanwhile, “people have their savings to take advantage of,” he said.
“While revenue growth is slightly weaker, people have the financial capacity to keep up with spending.
“There is a long backlog of construction work to be carried out and the number of vacancies is extraordinarily high.
“People can be confident that there will be jobs and in this environment people will continue to spend.”
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