Delivering a tough message in Parliament on Friday, the Reserve Bank of Australia (RBA) governor, Michele Bullock, warned it was premature to expect a cut in interest rates by the end of the year.
Bullock admitted inflation remained high, and added official cash rate was a “blunt instrument” to fix the economy.
“Based on what the Board knows at present, it does not expect that it will be in a position to cut rates in the near term,” Bullock told the House of Representatives’ economics committee, The Nightly reported.
Financial pundits have been betting on rate cuts by the end of the year, that would provide relief to mortgagors and renters.
The RBA governor denied that the construction union, CFMEU “conditions,” or high interest rates were responsible for the housing crisis.
“The fundamental problem is the lack of supply in the housing market,” she pointed out, adding that housing construction costs rose by 5% a year, reported AAP.
As workers were more involved in public infrastructure and non-residential construction projects, building houses have been delayed.
Chief economist and assistant governor Sarah Hunter worried that the housing shortage could pose a long-term problem. “It’s unlikely to resolve itself in the near term,” she said.
The RBA kept the cash rate at 4.35% in August, while acknowledging that its decisions were based on bringing down the inflation rate within 2-3%.
“High inflation hurts everyone, it reduces what people can buy with their wages, it erodes the value of savings and it disproportionately hurts those on low or fixed incomes. But it’s the only tool we have … the alternative of higher inflation for longer is much worse,” Bullock said.
Besides rent and construction costs, insurance had been contributing to the high inflation rate.
Bullock added that a slowdown in the Chinese economy and ongoing geopolitical tensions leading to disruptions in supply chains were impacting the Australian economy.
“That is something that we’re watching quite closely because developments in China can have quite a big impact on the way our trade develops, and that therefore on our growth,” she said.
