The plight of stretched mortgage-holders is keeping the Reserve Bank focused on achieving a soft landing and people in jobs.
The Reserve Bank’s governor says letters from struggling borrowers make for tough reading, but push the central bank to achieve its goals to help Australians.
Michele Bullock acknowledged the pressure on mortgage-holders from higher interest rates and told a parliamentary hearing it was “what’s driving us to try and make sure that we keep on this narrow path”.
“I get lots and lots of letters, and I read those letters, and some of them are very hard to read,” she said on Wednesday.
The governor said Australia was still on the narrow path to a “soft landing”, which involves the economy slowing enough to beat inflation while keeping the gains in the labour market.
Having a job was key to the health of household balance sheets, she explained, and the ability to manage higher repayments.
And while the 40 per cent of the population exposed to interest rates as mortgage-holders were “experiencing challenging times”, Ms Bullock stressed higher prices were hurting everyone .
“We don’t want to prolong higher interest rates for longer than we have to, but we need to make sure that they’re in place for long enough to bring inflation back down,” she said.
On the trajectory for interest rates, Ms Bullock reasserted the central bank was “not ruling anything in or out” and would base its next decisions on incoming data.
“If it turns out, for example, that inflation starts to go up again, or it’s much stickier than we think and we’re not getting it down, then we won’t hesitate to move rates again,” she said.
“In contrast, if it turns out that the economy is much weaker than expected, and that puts more downward pressure on inflation, then we’ll be looking to ease.”
Queried on the impact of the federal government’s energy bill rebates on the RBA’s inflation fight, Ms Bullock agreed with Treasury estimates the overall package would trim a quarter of a percentage point off headline inflation.
Following the federal budget, the $300 energy rebate plan attracted criticism from some economists warning it would alleviate headline inflation but would drive spending elsewhere.
Ms Bullock said the power bill relief would drive headline inflation down “at the margin”, and could also help keep inflation expectations anchored as well as influence the prices of items indexed to the consumer price index.
“But in terms of the underlying pulse of inflation, we’re looking through that… we don’t think it’s going to have an impact on that,” she said.
“We try to look through things that are one-off and are going to be reversed.”
