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Cash-strapped Aussies besiege RBA boss

Economy 'really flat'

Source: Jim Chalmers

Australians are flooding the Reserve Bank boss with “hard to read” letters about their struggles to make ends meet amid high interest rates.

RBA governor Michele Bullock said the letters made for tough reading, but pushed the central bank to achieve its goals to help Australians.

Bullock, who appeared at Senate estimates on Wednesday, acknowledged the pressure higher interest rates were putting on mortgage holders.

But she said it was “what’s driving us to try and make sure that we keep on this narrow path”.

“I get lots and lots of letters, and I read those letters, and some of them are very hard to read,” she said.

It came as figures released on Wednesday showed Australia’s economy posted only 0.1 per cent of growth in the first three months of the calendar year, under the 0.2 per cent that had been expected.

On an annual basis, gross domestic product as compiled by the Australian Bureau of Statistics rose 1.1 per cent – the weakest annual growth figure outside Covid since the dot.com bust and introduction of the GST in 2000.

Treasurer Jim Chalmers said the poor showing had been expected.

“I think we can expect June to be similarly difficult,” he said.

“We expect growth to begin to pick up pace towards the end of the year, but again, not to stratospheric levels.”

Chalmers said sustained high interest rates were behind the sluggish result “in combination with moderating but persistent inflation and global economic uncertainty”.

“This is a justification for the government’s approach to fighting inflation without smashing the economy, given growth was already soft and people were already under pressure,” he said.

Ahead of the ABS data, Bullock told the Senate committee that the economy was “very weak”.

“We’ve got people cutting back on discretionary expenditure,” she said.

“But we’ve still got the labour market growing, and that’s a very important point to remember.”

She said Australia was still on a narrow path to a “soft landing”, which involves the economy slowing enough to beat inflation while keeping the gains in the labour market.

Having a job was key to the health of household balance sheets, she said, and the ability to manage higher repayments.

And while the 40 per cent of the population exposed to interest rates as mortgage holders were “experiencing challenging times”, Bullock stressed higher prices hurt everyone.

“We don’t want to prolong higher interest rates for longer than we have to, but we need to make sure that they’re in place for long enough to bring inflation back down,” she said.

On the outlook for interest rates, Bullock reasserted the RBA was “not ruling anything in or out” and would base its next decisions on incoming data.

“If it turns out, for example, that inflation starts to go up again, or it’s much stickier than we think and we’re not getting it down, then we won’t hesitate to move rates again,” she said.

“In contrast, if it turns out that the economy is much weaker than expected, and that puts more downward pressure on inflation, then we’ll be looking to ease.”

Queried on the impact of the federal government’s energy bill rebates on the RBA’s inflation fight, Bullock agreed with Treasury estimates the overall package would trim a quarter of a percentage point off headline inflation.

Following the federal budget, the $300 energy rebate plan attracted criticism from some economists warning it would alleviate headline inflation but would drive spending elsewhere.

Bullock said the power bill relief would drive headline inflation down “at the margin”, and could also help keep inflation expectations anchored as well as influence the prices of items indexed to the consumer price index.

“But in terms of the underlying pulse of inflation, we’re looking through that … we don’t think it’s going to have an impact on that,” she said.

“We try to look through things that are one-off and are going to be reversed.”

The RBA board next meets to consider official interest rates on June 17-18.

-with AAP

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