Reserve Bank right to front-load rate rises

The Reserve Bank continued the normalisation of monetary conditions today with a third increase in the cash rate in as many months, lifting the cash rate target to 1.35 per cent. The increase reflects multiple and exacerbating stressors facing the Australian economy.

“The Reserve Bank is right to front-load rate rises given the recent rapid acceleration of inflationary pressures across the Australian economy,” ACCI chief executive Andrew McKellar said.

“The process of increasing interest rates will trigger some pain as consumers and businesses face higher loan repayments. However, a failure to do so would only risk embedding high inflation, forcing the Reserve Bank to take more drastic action.

“With businesses already struggling with soaring energy costs, congested supply chains and staff shortages, they cannot afford for inflation to become entrenched.

“The fundamentals of the Australian economy are solid. Heightened consumer demand, ultra-low unemployment, robust household budgets and strong export income mean that the Australian economy is sufficiently resilient to withstand tougher monetary policy.

“It must be remembered that inflationary pressures are as much driven by global supply chain constraints as they are by excess aggregate demand. Persistent disruption in China and ongoing geopolitical tensions in Europe have exacerbated price increases and cannot be ignored.

“Elevated interest rates threaten to further derail business investment which has fallen to anaemic levels in the past decade. The federal government must present a longer-term ambition to boost business investment that drives higher productivity, higher wages, and higher growth.

/Public Release. This material from the originating organization/author(s) may be of a point-in-time nature, edited for clarity, style and length. The views and opinions expressed are those of the author(s).View in full here.