Greens Call on Australian Government to Stop Interest Rate Hikes

Senator Nick McKim in the Senate at Parliament House in Canberra, Australia, on Sept. 12, 2019. (Tracey Nearmy/Getty Images)

The Greens Party has called on the Australian government to stop the central bank from raising interest rates further.

On Feb. 7, the Reserve Bank of Australia (RBA) announced the ninth consecutive interest rate hike, taking the official cash rate to 3.35 percent from the previous 3.1 percent.

This marks the new record for Australia’s fastest and largest interest-rate hiking cycle.

Following the announcement, Greens Treasury spokesperson Senator Nick McKim criticised the RBA’s decision, saying the bank was failing to ensure Australians’ economic prosperity and welfare.

“The RBA is willing to smash Australia into a recession in pursuit of a policy that is only benefiting the already wealthy,” he said.

The senator then called on Treasurer Jim Chalmers to ask RBA governor Philip Lowe to resign and use his power to reverse the bank’s latest interest rate increase.

“It’s time for the Treasurer to stop ducking for cover and start using his power to bring into line an RBA board that is running cover for corporate interests,” McKim said.

Speaking about the RBA’s monetary tightening policy, McKim said interest rate hikes were not the right solution to the current inflation situation, which he said was driven by “supply shocks and corporate profiteering.”

Pointing to the rising stock market, the Green senator said that mortgage holders, workers and small businesses were struggling under high-interest rates while the rich were getting richer.

As such, McKim called on the government to introduce super-profit taxes to deal with corporate profiteering and provide immediate living costs measures such as free childcare and a housing rent freeze.

Government Pushes Back on Greens’ Call

However, in a press conference, Prime Minister Anthony Albanese pushed back against the Greens’ calls, saying they did not have a correct understanding of how the economy worked.

Australian Prime Minister Anthony Albanese looks on during Question Time at Parliament House in Canberra, Australia, on July 28, 2022. (Martin Ollman/Getty Images)

“The Greens sometimes don’t understand the way that the economy works or the way the system works,” he said. “An independent Reserve Bank–that is a very important principle. One that we maintain. One that we won’t be diverting from.”

Reserve Bank’s Interest Rate Decision

To justify the 0.25 percent interest rate rise in its February meeting, the RBA board cited the high annual inflation rate, which stood at 7.8 percent in the December 2022 quarter, the highest level in Australia since 1990.

“High inflation makes life difficult for people and damages the functioning of the economy,” the bank said in its statement.

“And if high inflation were to become entrenched in people’s expectations, it would be very costly to reduce later.”

Pedestrians walk past the Reserve Bank of Australia in Sydney, Australia, on June 4, 2019. (Peter Parks/AFP via Getty Images)

Regarding the inflation outlook in 2023, the bank said high inflation was temporary and that it would take some time for price growth to ease.

“(Domestic) inflation is expected to decline this year due to both global factors and slower growth in domestic demand,” it said.

“The central forecast is for CPI inflation to decline to 4.75 percent this year and around three percent by mid-2025.”

Under this forecast, the RBA said it was aiming to bring inflation down to the two to three percent target band while keeping the Australian economy balanced.

However, the central bank noted that there was not much leeway to cool down economic growth without triggering a recession.

“The Board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that,” it said.

According to the financial comparison website RateCity, the new rate hike would add $76 (US$52) to the monthly repayment of an average home buyer with a $500,000 mortgage on a 25-year term and $114 for a $750,000 mortgage.

If taking into account all rate increases since May 2022, the additional repayment amount would go up to $908 for a $500,000 mortgage and $1,362 for a $750,000 mortgage.

While many Australian households are already struggling under the current interest rates, the future outlook is even grimmer for mortgage holders as the RBA expected more interest rate hikes to come in the next few months.

What the Government and Economists Say About the Interest Rate Increase

Treasurer Jim Chalmers acknowledged that the current interest rate hike cycle had added more pressure on Australians and the economy.

“It’s our job to focus on the broader pressures that are coming at us from around the world and being felt around the kitchen tables of this country,” he told parliament.

However, the treasurer reiterated the government’s forecast that inflation would decline in 2023.

“There is growing evidence that inflation is expected to have peaked in our economy and is now beginning to moderate,” Chalmers said.

Australian Treasurer Jim Chalmers conducts television interviews at Parliament House in Canberra, Australia, on Oct. 23, 2022. (AAP Image/Mick Tsikas)

Chalmers also mentioned the government’s plan to deliver living cost relief in the upcoming May budget that did not add to inflation and showed budget spending restraint.

As the treasurer presented the government’s view on the matter, Opposition Leader Peter Dutton criticised the Labor government for the impact of high inflation on the economy and society.

“Why do Australian families always pay more under Labor?” he questioned at the parliament.

Meanwhile, Matthew Hassan, a senior economist at Westpac Bank, said the latest rate increase was in line with the bank’s expectations.

However, he noted that the tone of the RBA’s announcement was more hawkish than what the market was expecting.

Based on the RBA’s statement, both Westpac Bank and ANZ Bank confirmed their forecasts that the official cash rate would go up by another 0.25 percent in March and April, hitting 3.85 percent by May 2023.