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  • Rikki Lambert

Reserve Bank's rein on Christmas parade could continue in 2023

A professor of economics warned on the morning of Tuesday's final Reserve Bank of Australia meeting that more rate hikes could follow an expected hike of 25 basis points - and the RBA agrees.

Speaking on Flow, Charles Sturt University professor John Hicks said:

"Rates can come down once inflation starts to fall but if inflation keeps up at the level that its at or indeed if it worsens, then I think the Reserve Bank needs to look at that fairly carefully and start pushing interest rates up even further."

Treasurer Jim Chalmers says the latest increase in official interest rates is "the Christmas present no Australian household wanted".

Reserve Bank of Australia governor Philip Lowe has signalled that further interest rate increases are likely in 2023, after the RBA lifted the cash rate by 25 basis points to 3.1 per cent on Tuesday.

When an eighth hike was expected on Tuesday morning , Professor Hicks said the inflation level of over 6 per cent per annum - well above the RBA's 2 to 3 per cent target range - meant the 25 basis point hike would be justified particularly on the eve of Christmas:

"The Reserve Bank wants to discourage spending because that's the only way they will be able to bring down inflation. The fact that it's Christmas may be a reason why they do go ahead and increase the cash rate."

Listen to the full interview here:

Professor Hicks was also more conciliatory in his tone regarding the future of RBA governor Phillip Lowe and his past predictions rates wouldn't rise until 2024:

"A lot has been made of this statement by the governor of the Reserve Bank and clearly it was a mistake to make it in the way that he did, but he was making it on the assumption that things in the economy would keep going as they would and at that time there was no reason to expect interest rates would be increasing. Subsequently we've been hit by these cost increases coming largely from overseas.
"I think demands for his removal are a little incorrect. He's been doing a very good job and the board has been doing quite a good job. They haven't done anything extreme over the last year or so, they've acted on the advice they've been receiving and been very firm in trying to meet the objectives they've been setting."


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