Aussies facing more rate pain under new RBA boss

Cash-strapped Australians are unlikely to get much respite from higher interest rates with new RBA governor Michele Bullock set to continue the tough monetary stance of her predecessor.

Tough times ahead

Cash-strapped Australians are unlikely to get much respite from higher interest rates with business groups and unions predicting new RBA governor Michele Bullock will continue the tough monetary stance of her predecessor.

HIA chief economist Tim Reardon said there would be “at most” one more rate hike but the impact of the series of increases over the past year was likely to take at least another year to wash through the economy. “The building industry is about to take a cold shower with activity set to drop to a decade low,” said Mr Reardon. He said the RBA has not acted cautiously in relation to interest rate hikes and should have acted sooner.

“This would have allowed time for the impact of higher interest rates to be observed and avoided the roller coaster ride the building industry is about to go through,” said Mr Reardon.

The impact of the first rate hike last year was only just starting to have an impact on employment in the building sector with activity set to slow further.

Australian Retailers Association chief executive Paul Zahra said the impact of sustained interest rate increases had been significant on Australian homeowners and retailers – who were at the mercy of a discretionary spending slowdown alongside rising operating costs.

Michele Bullock is the next Reserve Bank of Australia governor. Picture: NCA NewsWire/Martin Ollman

“We welcomed the decision to pause interest rates this month and are hopeful that with inflation showing signs of regression, interest rates may have peaked,” Mr Zahra said.

Australian Council of Trade Unions secretary Sally McManus has called for a “reset” of the unemployment target following the appointment of Ms Bullock, who last month argued the nation’s unemployment rate “will have to rise” in order to get inflation under control.

Ms McManus said the RBA needed to engage with the union movement and recalibrate what it defined as “full employment”.

“Economists have an idea of where they think unemployment needs to be to stop wages magically going up. During the pandemic and post pandemic we have seen unemployment be very low and it was not causing wages to go up,” she told the ABC.

Barclays analysts expect policy continuity under Ms Bullock with her boss Philip Lowe delivering a final official cash rate hike next month. Economists at Goldman Sachs are predicting Ms Bullock will oversee a rate hike of 25 basis points in interest rates in November and December. The increases will see the official cash rate peak at 4.85 per cent – with outgoing RBA governor Philip Lowe to oversee at least one more 25 basis points rise in August to 4.35 per cent. The current cash rate is 4.10 per cent.

Griffith University Business School dean Fabrizio Carmignani said current monetary policy would continue under Ms Bullock but inflation was close to a peak.

Australian Retailers Association CEO Paul Zahra. Picture: Supplied

Professor Carmignani said the appointment of an insider to run the bank was important to maintain its independence. “The economy is about to enter a most difficult period,” he said. “I’m glad a political appointment was avoided as the independence of the RBA is a necessary condition for the stability of monetary policy.”

Ms Bullock has a “formidable” challenge to tame inflation amid a precarious period for the Australian economy, employers body AiGroup said. “Maintaining stable, predictable and transparent monetary policy is a pillar of a vibrant modern market economy and the incoming governor will provide continuity at a precarious time for the global and domestic economy,” Ai Group chief executive Innes Willox said. “The current challenge of bringing inflation down while retaining the very strong gains that have been made in the labour market over recent years remains formidable.”