Senate Economics Legislation Committee, , 3:41:34 to 3:45:30
The RBA Governor explains the limits of monetary policy in addressing supply-side inflation shocks and the bank's remit.
Topics: Integrity, Government spending
Speakers: Dr Christopher Kent, Senator Fatima Payman, Michele Bullock, Senator Lisa Darmanin
So just on inflation, where inflation is materially driven by factors the cash rate cannot directly affect. Has the RBA ever formally advised the government that an additional policy instrument or statutory power or institutional mechanism is required?
No, it's not not our role to advise the government on these sorts of things, Senator. Um our role is to uh set monetary policy to deal with inflation and keep inflation uh in the target band and preserve full employment to the extent we can. Um it is the government's role and the elected officials' role to decide what they want to do, if anything, um, in this space.
I understand um your proposition, but obviously like it would be within your remit to seek out additional tools um acknowledging the limits of interest rate policy in responding to supply shocks.
It's it's not within our remit, Senator. Our remit is to use the uh tools available to us to deal with inflation and full employment. That is that is what we do. Um independence suppose goes goes both ways. Um the government and the elected officials, and they are the people that decide what they want to do with all these because a lot of these additional tools that you haven't specifically named, but people are naming, they're all government tools. And they're not for us to tell the government what to do.
I mean you can have routine. Just last question. Um if the RBA cannot tell us how many households have nothing left to cut, you cannot identify um you know or you you're using a tool that cannot directly address major causes of inflation. Um face no comparable consequence when it's you know, your judgment is wrong. On what basis should Australians have confidence that the RBA is competent uh and fit for purpose?
Uh Chris, did you?
Yeah, look, I just want to correct this notion that we have no oversight of what's happening to those who are very directly affected by an interest rate increase. And and what we're talking about here is those who have a mortgage largely. And those who have a mortgage, we do have quite accurate data in a timely fashion on things like the way they're servicing their loans, including most Australians pay more than the minimum requirements, so we monitor that very carefully. That those extra payments have come back a bit, but they're most mortgage holders are still paying those extra payments. We also can look at when people that's all from each other. Yeah, but I I just sort of saying that they are most are paying more than the minimum they need to say service their mortgage. And the arrears rates haven't gone up a lot. And the other thing we see is this the stock of savings that people have built up by paying ahead of their mortgages, what's minimum required. We can look at those households that are drawing down on those. That would be the sort of households that are under the sort of stress you're talking about. And there are households who are drawing down on that stock of savings that they've put in their mortgage accounts. Um, but that share is not rising very significantly and is in line with previous years. And then just finally on this point about we can't affect supply, that's absolutely correct. But inflation is caused by the difference between supply and demand, and we can influence demand, and it's that difference that we do have to be.
Thank you. I'm going to Senator Canavan.