Australian central bank governor Philip Lowe has told the public that it is unlikely for Australia to experience a recession due to rising interest rates.
He also does not expect the Reserve Bank of Australia (RBA) to follow the U.S. Federal Reserve in raising the cash rate by 0.75 percent in one go to combat inflation.
Speaking at an event in Sydney on June 21, the governor said there were still a lot of positive factors in the Australian economy, including low unemployment, robust household budgets and record trade performance.
“So we don’t see a recession on the horizon,” he said.
“But if the last two years have taught us anything, you can’t rule anything out.”
Regarding how much the interest rate increases would be, Lowe said the RBA board decided to choose 0.5 percent at the June meeting because inflation rose more significantly than previously predicted.
“I would expect we will have the same discussion again at the next meeting (in July),” Lowe said.
At the same time, he said the RBA board would try to ensure inflation went back to the two to three percent target band while warning Australian households to brace for further interest rate hikes.
In addition, Lowe said although global events had driven inflation in the country, more and more domestic factors were taking effect.
Meanwhile, the RBA projected that inflation would peak at around seven percent in the December quarter, up from six percent in the previous forecast.
In the past two months, the RBA lifted the cash rate by a total of 0.75 percent, with June’s increase of 0.5 percent being the most considerable rise since February 2000.
Economists expect the cash rate to go up by another 0.5 percent to 1.35 percent in July.
Despite financial markets pricing in a cash rate of four percent by the end of 2022, Lowe did not expect that situation to happen.
“But the market has been a better judge of where interest has been going than we have over the past couple of years, so you have to pay attention,” he conceded.
