Prime Minister Scott Morrison has been forced to defend his economic judgment after an interest rate hike landed in the middle of an election campaign centred on the cost of living.
After Tuesday’s 0.25 percentage point hike in the cash rate, Mr Morrison argued that the central bank’s intervention was a testament to the strength of the post-pandemic recovery led by his government.
“The Reserve Bank [is] ending emergency-level monetary policy support to the economy because our economy is growing,” Mr Morrison said.
“Growth forecasts have been upgraded; unemployment is falling further; wages are increasing.
“These are the things that Australians want to see in their economy.”
Mr Morrison said the previous 0.1 per cent cash rate “was not something that Australians reasonably thought would go on forever” and had allowed households to prepare for the rise.
Three of the four major banks were quick to respond to the hike, with Commonwealth Bank, ANZ and Westpac all announcing on Tuesday they would pass it on in full to home loan customers.
CBA and ANZ made no changes to savings rates, but Westpac said it would increase rates by 0.25 percentage points on thre savings accounts: Westpac Life, Westpac 55+, and Retired.
NAB followed suit on Wednesday morning and said it would pass on the rate rise in full to variable-rate customers and also to some savings account holders.
Mr Morrison said the Coalition was now the best choice to manage the economy through an inevitable cycle of further rate rises.
That pitch will be challenged by the Prime Minister’s recent statements. He was circumspect on Tuesday about a fast-growing economy drawing a response from an independent central bank.
It was only six months ago, however, that he struck a different tone.
Labor referenced Mr Morrison’s recent claims implying his influence over interest rates and said they cast him as a leader who sought credit when economic times were good and to avoid blame when they were not.
“The Prime Minister in November last year, standing in front of all of you people, started this big scare campaign about petrol prices and interest rates,” shadow treasurer Jim Chalmers said.
“Today, Scott Morrison’s lies and scare campaigns have blown up in his face.”
Labor’s attack invites scrutiny of Mr Morrison’s political and economic judgment, particularly why he tied himself to interest rates at a time when they were – as he said on Tuesday – at emergency levels from which a rise was inevitable.
“Australia’s economic recovery has to be secured by people who have a track record in economic management,” Mr Morrison said in November.
“Otherwise you will see petrol prices go up, you will see electricity prices go up, you will see interest rates go up, more than they would need to.”
Despite the Reserve Bank warning inflation would get worse, Mr Morrison was not prepared to cede ground on his economic record or to critics of the recent budget.
Handed down in late March, the pre-election budget rested on the assumption that the Consumer Price Index, which measures inflation, would not top 4.25 per cent.
The central bank, whose optimistic forecasts are now in for question, said on Tuesday that it now expected headline inflation to reach 6 per cent this year and to remain above 3 per cent until mid-2024.
The pre-election budget included billions of dollars in cost-of-living measures which were reported as running the risk of triggering earlier interest rate rises.
Mr Morrison denied that this spending had only exacerbated runaway price rises and said the Treasury had expressly told the government it would not materially contribute to inflation.
“Our forecasting and our estimates have always been conservative,” he said.
He argued that the government’s cost-of-living package was functioning as a “shield” that consumers could use to protect themselves against rate rises.
“What that shield has done has ensured that what others have experienced in other countries has not happened to the same extent here,” Mr Morrison said.
The last mid-campaign rate rise was in 2007, which caused trouble for former prime minister John Howard, who had claimed Coalition governments would always keep rates lower and touted his superior economic management.
Rates were then sent to the much higher level of 6.75 per cent. Mr Howard was forced to say sorry.
Mr Morrison instead offered voters facing higher repayments his sympathies. Whether they will return them is less clear.