Expert slams RBA and predicts more rate rises amid inflation fears

An expert has laid into the RBA, accusing it of failing to control inflation – and sharing a grim prediction for Aussie homeowners.

A finance expert has lashed the RBA, accusing it of failing to control inflation – and sharing a grim prediction for Aussie homeowners.

Michael Every, global strategist at Rabobank, told the ABC’s The Business this week that the RBA had done a “terrible” job reining in inflation, and said the market agreed with his grim assessment of the central bank’s performance.

“CPI is still going to be between 6 or 7 per cent and it doesn’t seem like it’s going to come down quickly,” he said.

“The RBA itself is one of the slowest in terms of when it thinks it will bring it down, so I think it’s going to be sticky for a good long while yet.”

The RBA announced the first official interest rate hike since 2010 in May 2022, lifting the cash rate by 25 basis points to 0.35 per cent.

Since then, the RBA has aggressively raised the cash rate time and time again, only hitting the brakes this month after 10 consecutive months of brutal rate rises during a cost of living crisis.

Michael Every, global strategist at Rabobank, said the RBA had done a 'terrible' job of reining in inflation. Picture: The Business/ABC

The official cash rate now sits at 3.6 per cent, although many economists expect it to rise again in the months ahead.

On Wednesday afternoon, it was revealed that consumer prices rose by 1.4 per cent in the March quarter – slightly exceeding market expectations – to be 7 per cent higher than a year ago, leading many experts to predict further rate rises in the near future.

“The annual inflation rate is unfortunately still showing cause for concern for the Reserve Bank of Australia (RBA), and is likely to result in a further increase to the cash rate after the May 2023 RBA board meeting,” CreditorWatch’s chief economist Anneke Thompson said upon the release of the figures.

“A likely further increase to the cash rate in May will also impact businesses providing discretionary goods and services more acutely, as consumers will continue to pull back spending.”

Meanwhile, Mr Every added that the RBA’s decision to pause its rate hiking rampage this month came too early, and was the result of pressure from outraged mortgage holders.

He said the move would ultimately cause more pain in the long run.

“I think that was the wrong call for them to make and it does risk that they end up having to do even more further down the line, and that’s the problem with holding back – you’re going to have to give more later on,” he said, adding he believed the RBA would raise interest rates again – and that Australia now faced the possibility of stagflation – where the inflation rate is soaring while the economic growth rate slows down and unemployment is high.

“Wherever you look, there are risks of not doing enough, and then we get high inflation, there are risks of doing too much, and then we crash and we have a recession and deflation,” he said. “And we have a risk of stagflation, where we have growth bumping along the bottom, and inflation just won’t go down.”

Reserve Bank of Australia Governor Philip Lowe is under increasing pressure over the central bank’s performance. Picture: Mick Tsikas/AAP

He finished by saying he didn’t believe inflation would come down gradually allowing for a swift economic recovery.

“All the other nasty scenarios where you crash and have very, very low inflation, or they don’t do enough, and we have persistently high inflation, and or stagflation, these are much, much more likely,” he said.

The latest criticism comes after several RBA officials finally admitted they “did a terrible job” earlier this month.

Speaking at a panel in Melbourne recently, Ian Harper, who has been a board member for seven years, conceded that after Covid hit, the central bank struggled to balance the need to keep inflation within its 2 to 3 per cent target and maintain stability in the financial system.

“Both of those things led us to be extremely cautious. With hindsight, excessively cautious in how we set interest rates during that time,” he said, according to The Australian.

The RBA has been accused of failing to control inflation. Picture: Dan Peled/NCA NewsWire

He added that “with the benefit of hindsight … it looks like we did a terrible job”.

“When you look backwards, often times you see things much more clearly than you do at the time,” he said.

Meanwhile, deputy governor Michele Bullock also conceded the RBA’s crucial interest rate messaging – including repeatedly insisting that rates would not rise until “2024 at the earliest” – had been “garbled”.

“I will accept … that the message got garbled. People latch on to a date … and even now that we are raising interest rates, they still want us to put a date on when we are going to stop doing it,” she said.

“We should have resisted … a little bit more there.”