Politics

RBA’s shock rate rise prompts Jim Chalmers to promise cost-of-living relief in budget

“We don’t need to get inflation back to target straight away, but nor can we take too long,” he said.

“We are taking a bit more time than some other countries, on the basis that doing so can preserve some of the gains in the labour market. But there is a limit here.

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“If we take too long to get inflation back to target, expectations will adjust and life will become more difficult. Today’s further adjustment in interest rates will help with the return of inflation to target in a reasonable period.”

Lowe revealed the bank is now expecting the economy to expand by just 1.25 per cent this year. In February, it was tipping growth of 1.6 per cent. Unemployment is expected to be around 4.5 per cent by the middle of 2025. It is currently 3.5 per cent.

The head of Deloitte Access Economics, Pradeep Philip, warned the Reserve Bank was pushing the country to the brink of recession.

“Today’s rate increase shows that the Reserve Bank is still playing recession roulette, despite briefly and sensibly walking away from the table when it paused rate hikes last month,” he said.

Pradeep Philip fears the RBA is pushing the country to the brink of recession.

Pradeep Philip fears the RBA is pushing the country to the brink of recession.Credit: Eamon Gallagher

“The decision to lift the cash rate by 25 basis points to 3.85 per cent is unnecessary given 10 previous rate hikes are still working their way through the economy.”

AMP Capital chief economist Shane Oliver said the Reserve Bank may be cutting interest rates by year’s end because of the growing risk of an economic downturn.

“We think that the RBA has done more than enough and we have reached the peak in rates. Continuing to raise rates from here adds to the rising risk of plunging the economy into a recession,” he said.

Chalmers said next week’s budget would seek to alleviate some of the pressures being felt around the country.

“There will be a substantial cost-of-living package. It will have a number of elements. It will prioritise the most vulnerable Australians and it will be conscious of the inflationary environment that we find ourselves in,” the treasurer said.

Shadow treasurer Angus Taylor said Tuesday’s rate rise should be a wake-up call for the government.

“It is clear that we haven’t seen a clear plan from the government to deal with the inflationary pressures Australians and our country is facing,” he said.

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Seven News reported on Monday the budget would contain an increased JobSeeker for recipients over 55, prompting independent MPs to urge the government to do more for young people. But government sources cautioned that information was not wholly correct.

Increasing the rate of JobSeeker was the key recommendation from the independent Economic Inclusion Advisory Committee’s first report. Its second recommendation was to raise the rate of Commonwealth rent assistance, as rents continue to rise by the biggest rates on record.

Goldstein MP Zoe Daniel said she would be disappointed if the government does not boost rent assistance payments for young people.

“[They] are facing cost-of-living pressures they have never experienced before,” she said.

Chalmers said the government was “very conscious” of the pressure on younger Australians and people should be careful about assumptions about what is or is not in the budget.

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“We should look at what the government announces next Tuesday night in its entirety,” he said.

On Wednesday, the government will announce an investment of $72.4 million over five years to support training in the early childhood education sector. The funding is designed to benefit more than 80,000 educators, focusing on regional, remote and Indigenous organisations.

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