Treasurer stands by inflation handling, as rates bite

Andrew Brown | February 8, 2023

Treasurer Jim Chalmers has stood by his government’s handling of inflation in the wake of a further interest rate rise.

The Reserve Bank on Tuesday moved to increase the official cash rate for the ninth time in a row.

Interest rates now stand at 3.35 per cent, the highest level since 2012.

Dr Chalmers told parliament that despite the interest rate rises, the government was working to curb inflation.

“The best way to address inflation is through cost-of-living relief, dealing with supply-chain pressures including in the workforce, and managing the budget responsibly,” he told parliament on Wednesday.

“The inflation challenge is the defining feature of our economy in 2023, just as it was in 2022. That makes it the government’s major focus.”

The Reserve Bank indicated further rate hikes would be needed in coming months to reduce inflation, which stands at 7.8 per cent and well clear of its two to three per cent target.

Despite the high inflation levels, Dr Chalmers earlier said the country was still likely to avoid a potential recession.

“The expectation of the Treasury forecasters is higher interest rates, combined with difficult global conditions will slow our economy considerably, but they don’t expect at this point a recession here in Australia,” he told ABC Radio.

While the treasurer said it would remain to be seen whether rates would rise further, he admitted the central bank’s language on possible increases was clear.

“The decisions for the future haven’t yet been taken, and I accept that the board’s language yesterday was pretty straightforward in that regard,” Dr Chalmers said.

“I’m not going to predict or pre-empt, I’m not going to second guess … there are signs that inflation has begun to moderate in our economy.”

Calls for Reserve Bank governor Philip Lowe to resign from the role have intensified following the interest rates decision.

Dr Lowe’s term is set to expire in September, although the treasurer said no decision had yet to be taken on whether he will serve another term.

Nationals leader David Littleproud has called for a new governor to be appointed.

“There’s probably an opportunity for a refresh, but that’s a matter for the government to make that determination,” he said.

“(The RBA) need to make sure they get the settings right and understand how the economy’s running at a granular level – how families are feeling this.”

Australian Banking Association chief executive Anna Bligh said she hoped the predictions of further rate rises would not eventuate.

“Banks are acutely aware that for some of their customers, this is getting very, very difficult. They’re in many cases already in discussions with those customers about how they can help,” she told ABC Radio.

“This is going to really stretch them further. We expect that there are about 800,000 people coming off a fixed loan contract to a bank to a variable contract over the next 12 months.”