‘Exposed’: Bleak warning over Aussie interest rates

An economist has warned Australia has been left “exposed to inflation that’s really destructive”, days before the Reserve Bank of Australia hands down its next rates decision.

The RBA will on Tuesday announce whether it intends to raise the official cash rate, having held off doing so since raising it 4.35 per cent in November, 2023.

It comes as the United States Federal Reserve defied expectations by revealing this week that it would be slashing the cash rate to roughly 4.8 per cent.

Judo Bank Chief Economic Adviser Warren Hogan said despite the cuts, Australia’s rates were still well below those in the United States.

“We are vulnerable because we didn’t ever get up to levels (in the US) … it’s absolutely crazy how far out of whack we are,” Mr Hogan said.

Speaking to Yellow Brick Road’s Mark Bouris on his podcast this week, Mr Hogan said low interest rates were “really dangerous”.

He said it left the country exposed to “insidious” inflation that “destroys open and free economies and open and free societies”.

In a “warning”, Mr Hogan said the RBA had its “finger on the trigger” and that any other central bank in the past 30 years would have already hiked the cash rate.

Asked why the RBA had not hiked the cash rate when it had the opportunity to do so in May and August, Mr Hogan said it was to protect its “reputation”.

Mr Hogan said the RBA “made pretty bad errors the likes of which we haven’t seen in the last 30 years” during the Covid pandemic.

“With no political cover from Canberra, if they (the RBA) hike and the economy collapses … That scares them,” he said.

“That’s what keeps Michelle Bullock up at night, that they’d be seen to trigger some sort of economic downturn.”

He added the RBA was already being blamed for “smashing the economy” even before a potential rate hike.

Mr Hogan has been an outspoken advocate of raising interest rates, the prospect of which has often drawn ire from Canberra and in the media.

He told Mr Bouris the RBA would “regret not just doing what they need to do” in raising rates, and that its “experiment has failed”.

That experiment, he said, was to maintain the gains in the labour market following the pandemic while holding the cash rate.

While Mr Hogan admitted it was “unbelievable how well the economy has performed”, he said it was because “sensible” homeowners paying mortgages ahead of time.

He went on to add that it was a “miracle” the unemployment rate – currently sitting at 4.2 per cent – was as low as it was given “unprecedented” migration.