The reserve bank governor Michele Bullock has said it's premature to be thinking about interest rate cuts in a widely anticipated speech in Sydney. Her remarks come a day after the ABS confirmed Australia’s economy is growing at its slowest pace since the 1990's recession.
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00:00The speech was about the evils of high inflation and you got quite a long lecture about it.
00:08Essentially harking back to the 70s when inflation peaked around over 10% and through that kind
00:14of 70s, 80s period stayed at that level before the RBA began what's called inflation targeting.
00:19That's where they try and get it between 2% and 3% in this target range, specifically
00:23to 2.5%. It's currently much higher than that, it's about 3.8% and they want to get it down.
00:28What they've been doing is using interest rates, lifting the cash rate to take more
00:32money out of the economy and get that demand down. Now that is working, inflation is coming
00:37down as it is in other similar economies, but the pain is really evident, particularly
00:43on certain parts of the community, those who have large debts, being home loans and mortgages.
00:49They've seen an absolute explosion in the amount of money that they are paying, taking
00:54out of their household budget and that's where a lot of the pain is centralised. But
00:58Michelle Bullock talking about the fact that actually high inflation is a greater evil.
01:03It affects everyone, but it affects people who have the least, the most. So there will
01:07be no deviation from the RBA's plan to use interest rates, keep them high to remove that
01:14demand in the economy until it gets down to between that target rate, which is something
01:19which it expects to do in the middle of next year.
01:22Treasurer Jim Chalmers accused the Reserve Bank of smashing the economy. Can you remind
01:27us what he said and how did Michelle Bullock respond?
01:31He basically talked about what the impact of interest rates. About a third of Australians
01:34have a mortgage, which is subject to interest rates. About a third of them rent. Many of
01:38those properties also subject to interest rates and about a third have paid off their
01:42housing. Now for those people who tend to be older, they have built up assets and what's
01:47happened with interest rates is it doesn't just affect housing, it also affects assets.
01:52So those people who have paid off their housing and don't have their housing cost, they're
01:56seeing their asset values rise. Shares, superannuation returning almost double digits and bank deposits
02:03getting more money back. So what you're seeing is a real split almost generationally in our
02:09society about the impact of interest rates. They're affecting most substantially people
02:15who have mortgages, people who are in the kind of middle years of 30 to 50. They have
02:20large mortgages, they have family commitments. These are the people that are being squeezed
02:24the most. But Michelle Bullock is absolutely laser focused that they will get inflation
02:29down, that inflation is a bigger problem because it is a problem for everyone and that they're
02:34using the one tool that they have at their disposal being interest rates. So they're
02:39going to stay at the level they are, basically dismissed out of hand any suggestion there
02:43are any imminent changes to interest rates on the horizon that will be maintained.
02:50And that's despite the low growth numbers we had yesterday.
02:54So we had GDP figures that basically showed the economy stuttering along, 1% of growth
02:58annualised for the past year. That's a level we haven't seen since the kind of recession
03:02we had to have back in the 90s. But that's not an excuse according to Michelle Bullock
03:08to change the interest rate settings. It shows it's working. The speech was about
03:13the evils of high inflation. And evil is a word that the former governor, Philip Lowe,
03:18used a bit when talking about inflation. Even to the very last line of this speech, Michelle
03:23Bullock was so focused on inflation, basically saying she's happy to wear higher unemployment,
03:29even though that has a substantial effect on the people who will lose their jobs to
03:34get inflation down. Inflation is what the Reserve Bank is focused on. And like the Terminator,
03:39they will just keep going until it gets down, essentially, no matter the cost.