Warning months left for inflation battle ahead of forecast rates rise

A big four bank has warned that the inflation battle is far from over while politicians fear jobs and businesses will be lost after the Reserve Bank of Australia’s (RBA) expected rate rise on Tuesday.

Westpac chief executive Anthony Miller said he expects the central bank to keep pursuing the battle to bring inflation down as his bank reported a flat annual profit of nearly $7 billion.

“We’re seeing the Reserve Bank very actively go after that challenge ... with four rates increases and likely one or two more from here,” he said.

Australia’s second-largest mortgage lender recorded a net profit for the year to September 30 of $6.8 billion, down 1 per cent.

Westpac’s cash profit, excluding one-off items, came in at $7 billion. The full year dividend was $1.54 per share.

The Westpac results, announced on Monday, come a day ahead a widely forecast rise in interest rates, when the RBA is expected to lift the cash rate to 4.85 per cent.

The move would add more than $6000 to annual payments on an average mortgage, reports the Australian Financial Review. 

That would leave households shelling out the largest chunk of income to service mortgages on a median-priced home since the 1980s.

RBA Governor Michele Bullock in September declared that “the board will increase interest rates again if that’s what’s needed to get inflation down”.

Prime Minister Anthony Albanese told Nine newspapers last week that raising interest rates was a “blunt instrument” in a rare remark against the Reserve Bank of Australia.

NSW Premier Chris Minns has followed, warning that jobs and businesses would be lost if the central bank raises rates as markets expect on Tuesday.

“I don’t think this is a straightforward decision,” he told reporters on Monday.

“The impact of another rate rise on the New South Wales economy will be massive. There’ll be jobs that go that will never come back. There’ll be shops that close that do not reopen with another rate rise.

“We can’t be flippant about this, this is a very, very tough call for them.”

Read more

Unpopular policies could be what’s needed to stop ‘blunt’ rate rises

Miller warned that the four rate rises this year, coupled with Labor’s tax changes from May, have had an impact on the property market.

“But we’ve been in this situation before... in fact, since 2008, we’ve had four (downturns),” he said.

“The thing we need to keep in front of us ... is that the demand for housing in Australia far exceeds the supply.”

Miller was generally upbeat about the performance of the Australian economy, pointing to strong business investment.

“All of that is going to investment in Australia to improve the economy.”

Higher inflation sticking around

In the short term, the markets are pricing in an 82 per cent chance of another interest rate hike, when the results of the RBA two-day board meeting are announced at 2.30pm on Tuesday, which is also Melbourne Cup day.

Inflation remains way ahead of the RBA’s target range of 2 per cent to 3 per cent. 

Headline inflation surged more than expected, to 4.3 per cent in the 12 months to September.

The RBA is using rate hikes to deliberately squeeze household budgets, hoping that if families hurt enough, they’ll be forced to spend less, which will bring down inflation.

The central bank’s strategy relies on Australians cutting back but the latest figures show they already have, with household spending stalled.