Victoria
Economist warns of interest rate hikes as inflation persists
A leading economist has warned that interest rates may need to rise further as inflation remains stubbornly above the central bank's target.
The Reserve Bank of Australia is facing renewed pressure as inflation remains stubbornly above its target band, sparking warnings of a worst-case scenario for national interest rates. According to reporting by wire services, economists believe the central bank has so far been unable to successfully pull inflation down to its preferred target range of between 2 and 3 per cent.
This persistent inflation has left the Reserve Bank with very few conventional options to stabilise the economy. Analysts suggest that the only viable path left to bring prices under control is to aggressively suppress consumer demand across the country. This approach, described by observers as taking a sledgehammer to demand, would likely involve keeping interest rates elevated or raising them even further, despite the severe pressure this would place on mortgage holders and businesses.
The underlying wire report did not specify the exact peak interest rate predicted under this worst-case scenario, nor did it name the specific economists behind the latest warnings. It remains unclear how high interest rates would actually need to rise to achieve the desired reduction in economic activity, or how long such restrictive policy settings would need to remain in place to be effective.
For households already struggling with high monthly repayments and the rising cost of everyday goods, any further monetary tightening would present a significant financial challenge. However, the alternative of allowing inflation to run unchecked is also considered highly damaging to the long-term health of the economy.
Watch for the release of the next quarterly consumer price index data to see if inflation shows any signs of moderating before the Reserve Bank board meets to decide on interest rates.
This report draws on original reporting by Wire report.
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