Waleed Aly has justified the Reserve Bank governor’s persistent rate hikes, which have placed enormous strain on Australian mortgage borrowers.
Dr. Philip Lowe told a Senate hearing in Canberra on Wednesday that this month’s ninth consecutive increase – bringing the cash rate to a 10-year high of 3.35 percent – would not be the last, cautioning that more pain would be required to prevent a repeat of 1990, when RBA rates reached 17.5 percent.
This is despite the fact that the head of the central bank predicted in 2021 that the cash rate would remain near-record low until 2024.
Dr. Lowe stated repeatedly during the hearing that he cannot be held personally liable for every decision made by the RBA board.
Aly, who is rumored to earn approximately $900,000 per year at Channel Ten, concurred, arguing that the government must devise alternative methods to combat growing inflation.
“It’s not Philip Lowe’s responsibility to come up with other ideas; the only thing he can do about inflation is raise interest rates,” he told the panel.
“(Government) is capable of all manner of actions. They may establish a new tax policy… If you want to combat inflation, you must essentially deprive people of their money.
“This is the unfortunate part. No one enjoys doing that, but it is necessary.
You might accomplish this by taxation, an increase in the GST (Goods and Services Tax), or government spending.
Aly alluded to Labor’s intentions to make childcare more cheap, as well as other welfare programs, and stated, “That will worsen inflation.”
He added that although it is commonly believed that increasing interest rates is the most effective strategy to lower inflation, it does not appear to be working in Australia’s current scenario.
Aly stated, “You can’t ask monetary policy to fix all of our issues, which means our only lever is to raise interest rates, and then when he (Dr. Lowe) does it, say, “How dare you raise interest rates?”
Earlier today, Dr. Low was subjected to a grilling during a Senate committee, when he was questioned about his inaccurate forecasts.
However, he argued that further economic suffering is required to prevent a repeat of 1990, when RBA rates peaked at 17.5%.
Dr. Lowe told the Senate on Wednesday, ‘There is a risk that we have not yet done enough with interest rates, expenditure is more resilient, and inflation remains high.’
If inflation remains high, it exacerbates income disparity, makes it more difficult for businesses to plan, erodes the value of people’s savings, and is toxic to the economy.
Thousands of Australians who took up mortgages on his recommendation are now suffering, with many being forced to pay hundreds of dollars extra per month to keep up with the escalating interest payments.
In the past nine months, average variable-rate borrowers have experienced a 43 percent increase in their monthly payments, while fixed-rate borrowers face a 65 percent hike in 2023.
Dr. Lowe recognized that it was “extremely, extremely difficult for some” and stated that he had received personal letters from Australians drowning in debt.
He stated, “I read these letters and hear these stories with a heavy heart.”
‘I find it disturbing. I recognize that people are suffering greatly, but I also understand that if we don’t control inflation, it will lead to even higher interest rates and more unemployment.
He strongly cautioned the government against meddling in the most recent rate hike, adding that the “completely insane” decision could result in even higher prices and unemployment.
Shortly before Wednesday’s hearing, the Commonwealth Bank disclosed that, when comparing the first fiscal half of 2023 and 2022, its statutory net profit had improved.
Many distressed homeowners believed that the bank’s 10% increase to $5.216 billion was financed by the same rising interest rates that are driving them into bankruptcy, and they were enraged to learn of the news.
The Commonwealth Bank, Australia’s largest mortgage lender, anticipates two additional RBA rate hikes by April, bringing the cash rate to 3.85%.
NAB, Australia’s largest business lender, revised its cash rate projection for May to 4.1% on Tuesday, with chief economist Alan Oster admitting that three more rate hikes may trigger a recession.
‘We still do not anticipate a technical recession in Australia,’ he said, ‘but with rates climbing beyond 4%, it is getting more likely.’
Westpac and ANZ anticipate a cash rate of 3.85% by May.
»Waleed Aly defends Philip Lowe after Senate hearing«