The Project host Waleed Aly has spoken up in defence of embattled Reserve Bank boss Philip Lowe, telling viewers that the Australian central bank only has one way to fight inflation and that’s to “take money away from people”.
Dr Lowe fronted an at times fiery Senate Estimates hearing on Wednesday, his first public appearance since the bank hiked rates for the ninth consecutive month.
Since May, the cash rate has been aggressively hiked from 0.1 per cent to 3.35 per cent, with an unapologetic Dr Lowe warning: “I don’t think we’re at the peak yet.”
He said: “Inflation at the moment is 7.8 per cent, that is way too high. It needs to come down. So that’s our primary consideration.”
Discussing the hearing on Wednesday night’s show, Aly agreed with The Guardian political reporter Amy Remeikis that the country needs some “different ideas” to tackle inflation.
“[That] is actually I think the most interesting point, and that’s not a Philip Lowe point, because it’s not on Philip Lowe to come up with other ideas,” Aly said.
“He has one thing he can do to deal with inflation and that is raise interest rates. And that’s that.”
“So what are those other mechanisms then to start bringing inflation down?” host Sarah Harris asked.
“Right, well that would fall on government,” Aly said.
“They can do all sorts of things – they can do it with tax policy. If you want to take heat out of the economy … basically to deal with inflation you need to take money away from people. That’s the unfortunate thing, and no one enjoys that but that’s what you’ve got to do. So you can do that through tax, you could increase the GST or something, that would take money away from people.”
Aly also suggested cutting government spending.
“The new Government has a whole lot of things it wants to do that are going to be really expensive, things that people like, like the childcare policy or whatever, they’ve got a whole lot of things they want to do,“ he said.
“All of that is going to make inflation worse.”
Aly said it had long been held that monetary policy – interest rates – rather than fiscal policy – government spending – was the better tool to deal with inflation.
“That’s the theory, but what we’re seeing now is that may not be true,” he said.
“Because you can’t basically set up a thing where we’re going to ask monetary policy to solve all our problems. Which means our only lever is to put interest rates up, and then when he does it, you go, ‘How dare you put interest rates up?’ That’s a broader question for politics.”
During Wednesday’s grilling, Dr Lowe said he had an “open mind” to further rate rises but didn’t know just how far the bank would go.
“It will depend upon inflation data, resilience, spending and what’s happening with wages. I don’t think we’re at the peak yet but how far they need to go, we’re still unsure,” the governor said.
Dr Lowe also revealed he had been flooded with letters from mortgage holders struggling with the impact of the consecutive rate rises.
“I find it personally sort of disturbing, really, and people are really, really hurting. I understand that,” he said.
“But I also understand that if we don’t get on top of inflation, it means even higher interest rates. And more unemployment.”
The governor had been asked by Senator Nick McKim to directly respond to renters who had been “smashed” by interest rates while the “major banks are pulling in megaprofits”.
Dr Lowe added that profitable banks were “positive for the country”.
“I know it’s hard for people to accept when they’re suffering, problems with their personal finances, but the country is better off from having strong, resilient, effective banks who can provide the financial services that we need. All right?” he said.
The governor was also questioned about just how the central bank was factoring in the pain nine consecutive rises was having on Australians.
Dr Lowe told the hearing the RBA had spoken to bodies such as the Australian Council of Social Services and obtained direct feedback for individuals.
“We hear the message loud and clearly. And we factor that and we talk about at every board meeting how this is really, really hurting some households,” he said.
“But we also talk about if we don’t get on top of this, the pain will be worse. It’s not a nice message, but that’s the reality we face.”
– with NCA NewsWire
Story Credit: news.com.au