Scott Morrison says cost of living pressures are going on “all around the world” after Australia’s big four banks warned interest rates could rise four times in the second half of the year.
The surprise decision by the Reserve Bank of Australia earlier this week to abandon its “patient” approach to monetary policy – brought about by the Covid-19 pandemic – has prompted a revision of forecasts.
Inflation pressures are to blame, but the burden is on the Prime Minister and Opposition Leader Anthony Albanese to convince voters they can keep cost of living pressures under control ahead of next month’s poll.
Westpac and NAB, alongside the Commonwealth Bank and ANZ are now predicting the first interest rate rise since November 2010 will occur on June 7, two months ahead of schedule.
They expect the official cash rate to increase from 0.1 per cent to at least 0.25 per cent before peaking at two per cent next year in a move that could add hundreds of dollars to mortgage repayments each month.
It had previously been expected the RBA would hold the cash rate at the record low until 2024, but inflation pressures in part caused by the war in Ukraine and low unemployment has changed the situation.
With the election to be called any day now, Mr Morrison said “strong financial management” in the years ahead was going to be key.
“There are lots of pressures on the Australian economy… That’s going on all around the world,” Mr Morrison told 3AW radio on Friday.
“That’s why strong financial management in the years ahead is going to mean more than anything, and we’ve had a steady hand on those issues. “
Earlier, Defence Minister Peter Dutton acknowledged the looming impact on people’s mortgages, and used it as a pitch to re-vote the Coalition back in.
“It’s the reason you don’t want to risk going to Labor government. Labor is a disaster, they’re tax poor,” Mr Dutton told the Nine Network.
“We’ve seen (shadow treasurer) Jim Chalmers say they will remove the limit on the amount of debt they can go into, which is exactly what they did in the Rudd Gillard years – interest rates are higher in that environment and that’s a given.
“We’ve turned the budget around to be in a better position than anyone’s been able to do in the last 70 years … we have the lowest unemployment rates since the 1970s, and that puts us in the best possible position.
“You don’t want to risk a change of government in that circumstance.”
Deputy Labor leader Richard Marles acknowledged the “pretty difficult situation” Australia was facing, but said wage growth was an imperative measure to balance things out.
“We’ve had record low wage growth in Australia, because under this government productivity has fallen through the floor,” Mr Marles responded.
“At the end of the day, we have to get wages going. This government has no idea how to do that, but an Albanese Labor government will make this its first priority.”
Westpac chief economist Bill Evans had earlier warned the RBA was likely to now follow the path taken in the wake of the global financial crisis, moving quickly from “emergency” level rates to something more appropriate for an economy in recovery.
Mr Evans warned the cash rate would peak at two per cent by June 2023.
Coincidentally, Mr Evans said the unemployment rate is now predicted to reach 3.25 per cent by the end of the year.
“That much tighter labour market in turn points to a stronger lift in wages growth in 2023, with a peak of four per cent now expected compared to our previous peak of 3.5 per cent,” he said.
“Interestingly, the shift by the RBA board from a ‘patient’ to a more proactive approach to monetary policy is in the coxjmtzywntext of an election campaign that will be fought through most of April and the first half of May, indicating the RBA is willing to risk political controversy, particularly around any discussion of the role of the federal budget in changing the board’s stance.”
