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More interest rate rises ahead but pace of increase set to slow, RBA governor says & More Breaking News

 

Reserve Bank governor Philip Lowe says he will keep lifting interest rates but the pace will soon slow down and he is confident the economy can absorb the rises.

While Mr Lowe repeated recent statements hinting strongly that the pace of interest rate increases would soon slow from 0.5 of a percentage point each month, he emphasised that the cash rate had further to rise from the current level.

“[At] 2.35 [per cent], I think the rate is still too low,” Mr Lowe told the House of Representatives Standing Committee on Economics in Canberra.

He added that, over the longer term, the cash rate “should at least average the mid point of the inflation target”, which is 2.5 per cent, if not higher.

Mr Lowe said that an average interest rate of about 3 per cent was “possible”.

“I think we’ll cycle around some number between 2.5 and 3.5 [per cent],” he said.

Global recession threat

However, he is concerned the flagged large rate increases in the United States will push the US into recession, because that will make it harder for Australia to avoid a serious downturn.

“The outlook for the global economy next year is quite weak,” he said.

“And if it weakens further from our current forecast, it’ll be difficult for us to navigate this narrow path of getting inflation down while having our economy continue to grow reasonably well.”

Mr Lowe said the situation in the United States economy was very different to Australia’s.

He said the US Federal Reserve wanted to slow the US economy down because wages were growing at an annual pace of 6 per cent over there and it was making it very difficult to bring inflation down.

He said inflation was much higher in the US than it was in Australia, and the US Fed wanted to make interest rates deliberately restrictive to prevent a wage-price spiral occurring.

But that could have repercussions for Australia, he warned, because if the world’s largest economy fell into recession it would impact the growth rate of the global economy.

The World Bank has warned that there is a real and rising risk of a global recession amid soaring inflation and interest rates.

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