Australian mortgage holders have been warned that interest rates could rise again within weeks after Reserve Bank governor Michele Bullock declined to rule out a further increase at the board’s meeting on September 29.
Ms Bullock told parliament that inflation remained too high and was likely to stay elevated for some time. The consumer price rate currently stands at 3.5 per cent, while the RBA is assessing whether three rate rises already delivered this year will be enough to bring it below 3 per cent.
She said the impact of earlier decisions had not yet been fully felt, but stressed that bringing inflation down remained essential to preventing further cost-of-living pressures.
“But reducing inflation is essential. High inflation hurts all Australians,” Ms Bullock said.
Middle East conflict adds to inflation pressure
Ms Bullock and Treasurer Jim Chalmers said the war in the Middle East was adding to inflation, with petrol prices potentially rising to $2.60 a litre.
“From an economic point of view, the war in Iran has been a disaster,” Mr Chalmers said.
Ms Bullock said the government needed to take measures to counter the inflationary impact of the conflict.
“This Middle East shock has made us poorer. We can’t respond to that by letting inflation get out of control,” she said. “In fact, it’s more important than ever that we bring inflation back to target.”
The artificial intelligence and data centre construction boom was also identified as a source of inflationary pressure. Mr Chalmers said the technology revolution would have a profound effect on the economy over the next four decades, describing it as “the defining influence on our economy and our prosperity”.
RBA deputy governor Andrew Hauser said the strength of the AI and technology boom was “very striking”.
Economists warn of further rate rises
The official cash rate is currently 4.35 per cent, but some economists believe it could rise three more times, taking it above 5 per cent. That could leave some mortgage holders facing bank interest rates of more than 7 per cent.
Betashares chief economist David Bassanese said a rate rise in September now appeared likely after recent inflation figures came in higher than expected.
“On balance, it is now likely the RBA is going to go in September. I mean, we did have a hot inflation read a few weeks ago. Central banks around the world are raising rates,” he said.
“The signals are clear. They’re rising soon and maybe multiple times.”
The International Monetary Fund has backed Mr Chalmers’ property tax changes, saying they would correct distortions in the housing market, but warned the Australian government and state premiers needed to rein in spending.
Mr Chalmers said the government understood that households were under pressure and was providing cost-of-living assistance. Shadow home affairs minister Jonathon Duniam accused ministers of failing to reduce inflationary pressure by cutting government expenditure.
