Just over a week before the Reserve Bank meets for its next interest rates decision, one economist has predicted further increases are in store.
Judo Bank chief economic adviser Warren Hogan said he predicted the strengthening economy would trigger more rises, in what would be a devastating blow to mortgage holders around the country.
“What this is all about is actually just keeping us on a trajectory that will get inflation down, get rid of this cost of living crisis,” Hogan told Today.
“And unfortunately, it looks like that’s going to involve a couple more rate hikes.”
He said Australia had stopped short of increasing rates to the level similar economies around the world had, and “that last little bit” might be needed to quell inflation.
“There is definite pressure in pockets of the business community and severe pressure in pockets of the household sector,” Hogan said.
“But the overall economy is actually performing quite well, and if we don’t get our interest rates to the right level, the risk is at some stage the economy gets away from us and inflation really takes off.”
That could prompt a similar economic scenario to 1988-89, when rates reached 17.5 per cent.
“We’re not looking at that this time, but we don’t want rates at six or seven (per cent),” Hogan said.
“That’s going to really put is into a recession and do damage. This is all about mitigating that risk.”
Hogan said it was also possible further rises would not be needed if the economy was soft in the coming months.
“The RBA is definitely not going to go next week, but that is the emerging risk that we could have to go one or two more times,” he said.
Sydney suburbs where housing prices don’t drop below $3.9 million
Hogan said the government needed to remain “disciplined” in their upcoming May budget, and not “throw money” at the economy.
“You’re not going to get rid of this inflation when we’re creating 25,000 jobs a month this year so far,” Hogan said.
“Unemployment’s at multi-generational lows. These are great things. But of course they keep that pressure on inflation.
“And the cost of living is hurting everyone. And that’s what we’ve got to get rid of.”
The board next meets on May 6-7.
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