This is very welcome news for millions of Australians. This is the rate relief that Australians need and deserve.
When the Reserve Bank finally delivered a rate cut yesterday, Treasurer Jim Chalmers was quick to claim credit.
Under this labor government. Inflation is down, wages are up, unemployment is low, and now interest rates are falling as well. This is the soft landing.
It's happy timing for a government with an election looming, but for mortgage holders relief may be modest and with the RBA warning they don't expect to cut rates again soon, how much mileage the government will get out of this remains to be seen.
From Schwartz Media, I'm Ruby Jones. This is seven.
Am today, Managing editor of the Saturday Paper, Emily Barrett on the impact of the Reserve Bank's cut and what it tells us about the state of the economy.
It's Wednesday, February nineteen.
So, Emily, we've just heard perhaps the most talked about cash rate announcement in recent memory. There was so much speculation, so much weighing on this moment for many people. So to begin with, just tell me what the Governor of the Reserve Bank. What Michelle Bullock said, Yeah.
So, I mean this is the first cut in four years, and it follows thirteen hikes that went from May twenty twenty two to November tweeny twenty three. Now, the aim of those hikes was to bring down inflation, which peaked at seven point eight percent, and that was well above the banks two to three percent target range. So what Michelle Bullock was delivering was good news, Good.
Afternoon, Thank you all for coming. As you know, the board decided today to cut the cash rate by twenty five basis points to four point one percent the cash This rate has been at four point three five percent since November twenty twenty three.
She said, you know that they had determined that inflation had come down enough for them to actually make the cut. But it's what's known as a hookish cut, which means don't expect too much more.
I want to be very clear that today's decision does not imply that further rate cuts along the lines suggested by the market are coming. As I noted, we've removed the cautionary increase that we did in November twenty three to a level that we still see as restrictive but the Board needs more data and evidence that inflation is continuing to decline before making decisions about the future path of interest rates.
Okay, and the most obvious immediate effect of this will be felt by people who own property. So what do we know about whether the banks intend to pass on this cut and if so, what does that mean in practical terms for people who have a mortgage.
So the big four banks, they've apparently already given their commitment pass it on quickly, and that's something that Jim Chandler's the Treasurer, announced almost immediately afterwards, and with all the competition in the mortgage market at the moment, it's certainly in their interests to follow up. So we'd expect that this month and this will flow to most Australians
with mortgages because they hold variable loans. So if we look at one third of Australian households have meltgages, another one third are paid off and another third are renters. So according to the RBA, the minimum payments for most mortgages jumped sort of between thirty and sixty percent since the first rate hike in May twenty twenty two. So if you had a five hundred thousand dollars loan, your monthly repayments would have increased by about twelve hundred a
month over that time. So today's cut is modest in the sense that mortgage holders can look at a round sort of one hundred dollars a month maybe in savings from this cut. So an extra one hundred dollars a month for these mortgage holders, you know, anyone who's looking for that extra bit is going to be helpful. But I think, as one porter actually said in the press conference, it will barely touch the sides for some people.
And as you say, Governor Michelle Bullock spoke about this being a one off, not to expect further consecutive cuts.
So can you tell me more about why that is.
Yeah, So, as they've pointed out, the key measures of inflation show that it's returned back to the RBA's two to three percent target range, and that's quicker than expected,
but there's still a little bit further to go. Part of the reason that they have cut rates is that they're concerned about growth in the economy, but they're also concerned on the flip side, the productivity, that is, how much stuff we're actually making is really low, and so the output of this economy isn't as strong as it needs to be for supply to meet demand.
But we all know that productivity hasn't been as strong as we would have hoped, and that's the way we grow the economy. That's the way that we can have trained growth high because if but demand increases and supply doesn't, then that's when you get inflationary pressures.
So also there's the point that house prices are still high, so a series of cuts would kind of risk reigniting that demand in the market that probably hasn't called as much as it could have. And there's also just a lot of uncertainty out there. I mean, if we look it's where in an election campaign shortly, so domestically, you know, election campaigns tend to mean more government spending, more promises
around spending, which is in itself often inflationary. The global outlook, if we look out beyond this country, we've got highly unpredictable situation. I mean, you colonomists always say, you know, there's uncertainty out there, it gets very boring, but it's fair to say that this is an extraordinarily unpredictable outlook. We've got we're looking at potential trade wars. That's inflationary.
And to compound that, the Australian dollar is pretty weak right now and so further reate cuts way on the Australian dollar and that increases the cost of imports. That's also an inflation driver. But the main thing they pointed out as a risk is that the jobs market is still really strong, right.
Can you tell me more about that, because economists are often saying that to get inflation under control, we need unemployment to rise, but that has not happened here.
Yeah, So central bankers have been obsessed for a long time with the links between unemployment and inflation and interest rates, but this time around we haven't had unemployment go as high at all. People to suffer in terms of their jobs as much in the sort of task of lowering inflation. So there are a few reasons for that. You sort of need to take into account how the economy is changing a lot. You know, structurally, there are a lot
of differences. There, more people working gig economy jobs, there's part time work, and measures of underemployment that kind of aren't really captured in that headline rate and Importantly, we know that wage growth, at least in this case, wasn't fueling inflation at all to the extent that you know
it has in the past. We know that because wage inflation, like how much your pay was going up each year, was actually being outpaced by inflation, So your pay wasn't keeping up with inflation, so it can't have been driving it.
I mean, it's certainly clear that, you know, while the jobs market is held up, that still doesn't kind of offset the fact that we've seen people having to pay extraordinary amounts more each month for their mortgages and make really painful decisions about you know, are they going to pay their bills, are they going to pay their mortgage, or are they going to buy enough food to put on the.
Table after the break?
How much credit should the government get for the rate cut? Emily, the RBA was able to do this because inflation has come back within their target range between that two to three percent. And there was a lot of criticism of the Reserve Bank for these constant hikes, these thirteen consecutive hikes over the past four years. People saw it as
this blunt instrument to curb inflation. But does the fact that inflation is now slowing and we are now seeing a cut, proof that despite perhaps being unpopular, the RBA strategy did work here.
You can't say that RBA policy hasn't worked, because inflation has definitely come down, right, But the question is always at what cost? And as you're saying, you know, the blund instrument is really it's absolutely the case that raising interest rates to this extent hurt a tremendous number of people. And we've definitely looked, we've definitely seen some criticism of
what the RBA has been doing. That's come from a lot of different places, including from the treasurer from Jim Chalmers, you know, who's normally very circumspect about reinforcing the central banks independence. He said fairly recently that the RBA was slamming the economy. That's just to show the level of frustration that has been building about the fact that in rates have stayed this high for this long. You know, what michell Brook was saying today is that inflation is bad.
Wraith hikes are bad, but you really don't need for inflation to get further out of control because then there's just more rate hikes.
Emily, this rate cut it's obviously good news for the Abenezy government, who can now use it to talk about their handling of the economy and paint a good news story about successfully battling inflation and addressing the cost of living.
How much momentum do you think they can get out of this.
They'd certainly want to capitalize on this moment, and we're already seeing it with Jim Chalmer's out very quickly after the announcement, But in terms of how much momentum they can get out of it going ahead, it's not exactly a massive boon for people's budgets to be seeing this
extra money in their pockets each month. It's not a large amount, so there's perhaps that sense that, you know, if they're trying to make too much of it, then people will sort of be looking at their bank accounts and thinking, well, actually, I haven't seen that much back
from this. It's very delicate. As we're heading up to the election, Labor knows exactly how much trouble they could potentially be in here in the ABC's ass has shown us that there are some of the Labour's marginal seats of feeling really have taken the brunt of the higher mortgage costs, and we look at seats like McEwen and Holt in Victoria PSNWA, they have the highest proportions of mortgage holders in the country, abound fifty percent of people
living there. So, you know, I think that it's quite likely that the government is going to want to be talking about how their economic management has made this possible, and certainly in light of how much inflation has come down, they have something to claim there.
Can you tell me more about that, Emily? To what extent can the federal government claim this? Are there policies that you think have had a real impact or is this lowered inflation rate or just a consequence of what the Reserve Bank has done over the past four years.
There's a really good question. So there's always a bit of push and pull, right, how much is fiscal policy that's the government actions to do with this, and how much of it is monetary policy, which is simpral Bank's input. They're always pointing things at each other when things are going wrong. Thement does deserve some credit, that's it's resisted the temptation to spend more in a cost of living crisis. You know, obviously the populist move would be to try
and shovel more money out the door. It made some decent calls on balancing support for households. We remember that energy bill subsidies, which actually helped to bring headline inflation down. That obviously was you know, sort of kind of decried as a bit of trickery on the part of some people because it was sort of an artificial suppressing of inflation.
But it's still you know, you have to say it was a deft way to give people some kind of cost of living relief, which we know that people needed, without sparing inflation. So and for its part, you know, the RBA can say, as blonde tall as it is, interest rates have done the job here to a certain extent. They could also say, as central banks often do, that,
you know, heavy government spending doesn't help detame inflation. You know, government spending is pretty high historically, it's now around twenty nine percent of GDP and that's probably more than they would be comfortable if it's just that, how do you argue against that when people really need the help.
Emily Thank you so much via Tank, Thank you so much.
Ruby.
Also in the news today, the National Anti Corruption Commission will investigate six individuals referred to the body by the Robodette Royal Commission. The announcement follows an independent review into the anti corruption watchdog's refusal to investigate the six individuals, five public servants and one public official in June of twenty twenty four. The names of the individuals have not been released. And New South Wales Police have charged a
man with the alleged online harassment of journalist Antonettelatouf. The sixty one year old from Regional New South Wales has been charged with using a carriage service to menace, harass or offend.
It is due to appear before court in March.
Latouf says she received a number of hateful and racist messages since being taken off air from her fill in host role on ABC Radio Sydney after sharing a post on social media regarding the israeljimas War.
I'm Ruby Jones. This is seven am. Let's see you tomorrow.