Speakers: Michele Bullock

Transcript

Michele Bullock

Central banks in many other advanced economies are responding by increasing their policy rates or signalling they will do so if needed. Because monetary policy works with a lag, the full effects of recent rate increases are yet to be felt on domestic activity. The impact of the conflict in the Middle East on economic activity has been relatively modest so far. Household spending growth has been moderating only gradually, and business investment growth has picked up strongly, driven mostly by spending on data centres and renewable energy projects. The share of the population with a job remains high, and this is a welcome outcome for those individuals, their families and wider Australian economy. Conditions in the housing market have softened, reflecting the usual transmission of monetary policy, but also tax policy changes and the broader economic environment. Housing prices have fallen in most capital cities and new housing loans have declined. This follows a long period of strong growth, however, underpinned by a structural undersupply of housing. And housing prices are around 50% higher than they were in early 2020. Financial stability risks from household borrowing remain contained. While many are facing budget pressures, only a small share of borrowers are in negative equity or facing severe repayment difficulty. I recognise how challenging it is though for those experiencing these issues. Monetary policy does not target housing prices. Rather, what matters is how changes in housing prices affect economic activity, the labour market, and ultimately inflation. The monetary policy board will meet next week. We'll discuss our assessment of the flow of data and how the risks are unfolding. A key question is whether the tightening in monetary policy to date will be sufficient to bring inflation back to target in a reasonable time. We are committed to our mandate to deliver price stability and full employment. High inflation hurts everyone. It means high grocery costs, higher rent and higher electricity bills. It makes everyone's pay packets and savings worth less, and it particularly hurts people with lower incomes and little savings. Monetary policy affects all parts of the economy, not just households with mortgages. It influences the spending, saving and borrowing decisions for all households and businesses.