Economic conditions will get worse before they get better, Treasurer Jim Chalmers has warned mortgage borrowers as he revealed the terms of a wide-ranging review into the Reserve Bank of Australia.
The review will investigate why the RBA cut interest rates to emergency levels before reverting to month-on-month interest rate rises.
Chalmers’ comments followed RBA Deputy Governor Michele Bullock’s statement that households will be able to cope with a major lift in interest rates because they were able to get ahead of mortgage repayments during lockdowns.
“I think Australians are finding it difficult to make room in their household budgets for rising interest rates at the same time as the other costs of other essentials have been going through the roof,” Chalmers told 9News.com.au. “These interest rate rises will sting. Every dollar that a household spends in servicing their mortgage is a dollar they can't spend on meeting some of the other skyrocketing costs of essentials.”
Chalmers said what Bullock meant was that some people, thankfully, have some room in their mortgage because they have been able to build a buffer.
“But the point I would make about that is that not everybody has a buffer, particularly in the teeth of this cost-of-living crisis,” he said. “We need to recognise that as well.”
The treasurer said the review into the central bank was a must due to the “very difficult" challenges the economy was facing in the medium and long terms.
“This is our opportunity to ensure that the monetary policy framework is the best it can be to make the right calls in the interests of the Australian people and their economy,” Chalmers told 9News.com.au. “This review will consider the RBA’s objectives, mandate, interaction between monetary, fiscal, and macro credential policy, its governance, culture, operations, and more.”
Chalmers said the government was taking an open mind into the RBA review.
“I don’t want it to be an exercise in potshots or second-guessing,” he said. “I don’t want it to be exclusively focused on a backward-looking blame-shifting exercise. I want to genuinely see it be about how we have the world's best central bank into the future.”
Chalmers said a panel of three independent experts from Australia and overseas will lead the review, 9News.com.au reported.