Interest rates ‘smashing the economy’, Jim Chalmers says but dismisses RBA dig

Treasurer Jim Chalmers dismissed claims he was snubbing the RBA after he said cash rate hikes were “smashing the economy”.

Treasurer Jim Chalmers has insisted he “works very closely” with Reserve Bank governor Michelle Bullock and swatted away claims of a rift between the government and the central bank after he said interest rate rises were “smashing the economy”.

The overnight comments were seen as the government appearing to shift blame onto the RBA ahead of the release of Wednesday’s June quarter GDP figures that are expected to show a meagre 0.2 per cent increase in growth.

They also followed Coalition-fuelled rumours of a rift between the government and the RBA over increased public spending contributing to the central bank’s decision last month to hold the official cash rate at 4.35 per cent.

However, on Monday, Dr Chalmers said the comments aligned with the existing view he’d “taken for some months”.

“Our objectives are aligned with the Reserve Bank, but we have different responsibilities,” he told reporters.

Treasurer Jim Chalmers says the Reserve Bank is ‘smashing the economy’ with its interest rate hikes. Picture: NewsWire / John Gass

“I take responsibility for the government’s economic plan, which is all about turning big Liberal deficits into big Labor surpluses, rolling out cost-of-living relief in the most responsible way, fighting inflation, but doing that in a way that doesn’t smash an economy which is already weak.”

He also denied his words were an attempt at influencing the RBA, adding that he “cherished” the independence of the bank and had “a lot of respect and regard” for Ms Bullock.

“I think it’s self-evident the interest rate rise is already in the system of putting people under pressure and slowing our economy, and I think the Australian people, frankly, expect me to tell it like it is, and I’ve been making that point for some months,” he said.

Anthony Albanese also said the Treasurer’s views were “not new”.

The Prime Minister added that rate rises impacted the economy by dampening demand, and while the RBA had a “role to play in monetary policy”, the government’s job was “fiscal policy”.

“We both have the same objective of getting inflation to moderate. We, of course, have other jobs as well, as the Reserve Bank governor has said, which is to look after people’s interests, and that’s what we’re doing,” he said.

Reserve Bank governor Michele Bullock has consistently warned that the damage of persistently high inflation outweighs the current cost-of-living pressures. Picture: NewsWire / Martin Ollman

On Sunday night, Dr Chalmers said the government had “anticipated a soft economy at budget time,” which would be in-line with what economists expect for the June quarter GDP update.

“With all this global uncertainty on top of the impact of rate rises which are smashing the economy it would be no surprise at all if the national accounts on Wednesday show growth is soft and subdued,” he said.

The GDP data is expected to show Australia’s economy grew by just 0.2 per cent, which would cut annual growth from 1.1 per cent in March to 0.9 per cent for the 2023-2024 fiscal year.

Dr Chalmers said the government was balancing fighting inflation with cost-of-living relief “in an economy already being hammered by higher interest rates and global volatility.”

Fronting the House economics committee last week, the bosses of Australia’s big four banks said they expected interest rates to start to come down, despite the RBA Governor Michele Bullock saying fewer than two weeks ago it was a “premature” prospect.

She has consistently warned that the long-term damage of persistently high inflation far outweighs the current cost-of-living pressures.

While the Reserve Bank did not hike interest rates in August, offering hope to mortgage holders, the board said they did not expect inflation to return to the 2-3 per cent target band until December 2025.

While Dr Chalmers’ remarks on Sunday were pointed, he has previously said interest rate hikes were a source of pain for the economy, putting pressure on both businesses and consumers.

Coalition finance spokeswoman Jane Hume seized on the Treasurer’s comments, telling Sky News she was not surprised “because these wars have been going on for two years now.”

“You’ll recall that when Labor first came to government, Jim Chalmers blamed overseas factors for high inflation, then he blamed Philip Lowe, and now he’s blaming his hand-picked replacement for Philip Lowe, Michele Bullock,” she said.