The nation’s most powerful banker has been slammed by a top Albanese government minister after warning households may have to ‘sell their homes’ amid the cost-of-living crisis as she killed any hopes of an imminent bank cut.
Reserve Bank Governor Michele Bullock said aggressive rate hikes and cost-of-living pressures were pushing more people into tough financial situations.
‘Although this group is fairly small overall, those in it have had to make quite painful adjustments to avoid falling behind on their mortgage repayments,’ she told the Australian Business Economists lunch in Sydney on Thursday.
‘This includes things like cutting back on their spending to the more essential items, trading down to lower-quality goods and services, dipping into their savings or working extra hours.
‘Some may ultimately make the difficult decision to sell their homes.’
But Education minister Jason Clare criticised this comment on Friday morning.
‘I don’t want anyone to have to sell their homes. It is easy to say “look, people might have to sell their home”, but not if it is you, not if it is your life work to save for a deposit and buy a home,’ he said on Sunrise.
‘That’s why we have got to get inflation down, and if we get inflation down, it will make it easier for the Reserve Bank to cut interest rates.
Reserve Bank Governor Michele Bullock has been slammed after warning households may have to ‘sell their homes’ due to rising interest rates
Education Minister Jason Clare criticised the comments, stating, ‘I don’t want anyone to have to sell their homes. It’s easy to say ‘people might have to sell their home,’ but not if it’s you, not if it’s your life’s work to save for a deposit and buy a home.’
‘Tax cuts are important and wage rises. That helps people to pay the bills and pay the mortgage.
He also issued a message to Australia’s major banks, urging them to step up and assist Australians who are struggling to keep up with their mortgage payments.
”Banks play an important role when their customers are struggling to pay the mortgage to provide them with the support and flexibility to pay their mortgage.’
In her speech, Bullock noted low-income households and renters were the most vulnerable to the rate hikes.
‘Lower income households tend to allocate more of their spending towards essentials, including food, utility bills and rent,’ she said.
‘The experience of individual households varies widely, but younger households and lower income households have been particularly affected by cost-of-living pressures overall.
‘Those with mortgages are feeling the squeeze on their cash flows not just from high inflation, but also from the increase in interest rates that has occurred in response to it.’
Ms Bullock, however, has ruled out any rate cuts before Christmas.
‘Circumstances may change, of course, and if economic conditions don’t evolve as expected, the board will respond accordingly,’ she said.
‘But if the economy evolves broadly as anticipated, the board does not expect that it will be in a position to cut rates in the near term.
‘We need to see the results in inflation before we can do that.
‘If we don’t get inflation down, that’s bad for everyone, absolutely everyone. So that’s the job I’m focusing on. That’s the job the board is focusing on. I really think the board thinks at the moment, we’re still on that narrow path.’
The RBA cash rate was last month left on hold at a 12-year high of 4.35 per cent with no relief likely soon from the 13 rate hikes in 2022 and 2023 .
The most aggressive hikes since the late 1980s are already hitting the economy with the 1 per cent growth rate in the year to June the weakest since the 1991 recession, outside of a pandemic.
Treasurer Jim Chalmers on Sunday said the rate hikes were ‘smashing the economy’ and doubled down on Wednesday by pointing out the national accounts data had ‘borne out’ his point.
The RBA boss denied Opposition Leader Peter Dutton’s suggestion they were at war.
‘He’s doing his job and I’m doing mine,’ she said. ‘I wouldn’t use those sorts of words.’
But Ms Bullock said state and federal governments needed to be focused on bringing down inflation, after suggesting in June that ‘recent Budget outcomes may also have an impact on demand’.
‘The federal government and the treasurer said a number of times, that he’s doing his bit to try and bring down inflation,’ she said.
‘All the governments are conscious of it because, quite frankly, of all their constituents are suffering from high inflation.’
Ms Bullock said failing to tackle high inflation now would simply lead to even higher unemployment later.
‘High and variable inflation can also cause shifts in people’s wealth and spending power,’ she said.
‘Agreeing to a new contract, or making saving 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 long-lasting costs for households through higher unemployment.’
Inflation hit 3.8 per cent in June with the Reserve Bank not expecting the annual consumer price index to fall within its 2 to 3 per cent target until the end of 2025.
Unemployment climbed to a two-year high of 4.2 per cent in July with the RBA forecasting it will climb to 4.4 per cent by the middle of next year.
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