The Reserve Bank of Australia (RBA) Governor, Philip Lowe, has defended capitalism in a House of Representatives economic committee meeting on Friday. He claimed that “Capitalism works” and that Australia was among the wealthiest, prosperous and equal countries in the world. However, the statement may not sit well with the many Australians struggling to make ends meet. While one-third of the population owns property without a mortgage, a tenth of the owner-occupiers “have virtually no spare cashflow” and only “a limited ability to cut down on consumption”. Meanwhile, renters are facing a rental crisis, with rents rising at a record 10.2% clip last year, and still increasing at 10.1% in January.
The RBA is keen to see higher borrowing costs to take demand out of the economy, but if the intended target, a large chunk of mortgage holders, is relatively sheltered due to their stock of savings or advanced debt repayments, it will have to hike interest rates even higher to change their behaviour. The Governor also indicated that companies are not overly concerned yet about higher borrowing costs, and the cost of funding is not a major issue for businesses. However, small businesses are struggling with worker shortages, supply chain issues, high inflation, increased interest rates, reduced cashflow and increased debt burdens.
The Governor’s term expires in September, and every public appearance is an audition for his role. While the Prime Minister, Anthony Albanese, acknowledges that Lowe is “doing his job”, he has not provided an adjective to his comments. Lowe made it clear that if wage growth were to quicken, the RBA would be more twitchy when it comes to lifting interest rates higher. The December quarter wage price index is expected to come in at 3.4%, the highest since the final three months of 2012. However, it would imply the gap between the WPI and headline consumer price index figure of 7.8% had widened to a record.
In conclusion, Lowe’s comments may ring true for those Australians who are well-off, but for the many struggling to make ends meet, it will not sit well. While the RBA is keen to hike interest rates to take demand out of the economy, it will have to hike higher to change the behaviour of a large chunk of mortgage holders who are relatively sheltered due to their stock of savings or advanced debt repayments. Small businesses are struggling with a range of issues, including worker shortages, supply chain issues, high inflation, increased interest rates, reduced cashflow and increased debt burdens. If wage growth quickens, the RBA would be more twitchy when it comes to lifting interest rates higher.
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