Sky News First Edition 20/07/22

20 July 2022

SUBJECTS: Reserve Bank Review, interest rate rises, October 2022 Budget.

The Hon Jim Chalmers MP

E&OE Transcript

SUBJECTS: Reserve Bank Review, interest rate rises, October 2022 Budget.

PETER STEFANOVIC, HOST: Let’s head to Canberra. Joining us live is the Treasurer, Jim Chalmers. Treasurer, good morning to you. Thanks for your time as always. So, you are announcing a review into how the RBA operates going forward. How will things change moving forward?

JIM CHALMERS, TREASURER: Good morning, Pete. Well, ideally at the end of this review, which will be completed pretty quickly by March next year, we’ll have the world’s best central bank, the best set of arrangements, whether it’s governance arrangements or mandates, objectives, the institutional arrangements for the bank which allow it to make great decisions in the interests of the Australian people into the future. And we haven’t had one of these reviews for a long time, certainly not since the current regime has been in place since the 1990s. And so, it’s a good time to do that. We’ve got a lot of economic complexity. We’ve got a lot of economic challenges. We’ve got a first-class panel which has agreed to do the work for us, so we’re rearing to go.

STEFANOVIC: So, should Phillip Lowe stay on as Governor?
CHALMERS: This review is not about Phillip Lowe’s tenure as Governor of the Reserve Bank. I think his term comes to a conclusion at the end of next year, til around September of next year, and the Government will make a decision closer to then about extending or not Phil Lowe’s tenure at the Reserve Bank. But this is not about that. I have a mountain of respect for Phil Lowe. He’s someone I work very closely with and he is on board when it comes to reviewing the Reserve Bank. I’ve been collaborating with him and working with him to get the terms-of-reference right. It’s not about taking pot shots at people. It’s not about second-guessing decisions. It is about getting the right arrangements, the right institutions, going forward.

STEFANOVIC: Okay. But as everyone knows, Lowe said interest rates would stay at 0.1 per cent until 2024. The ANZ now believes the cash rate will be 3.35 per cent by the end of the year. That is a staggering miscalculation, Treasurer. So, what can you say to homeowners who took Lowe’s advice and are now paying the price for his mistake?
CHALMERS: It’s not the role of the Treasurer to defend decisions taken by the independent Reserve Bank or the Governor. The Governor himself has explained the circumstances around that guidance that he gave and the language that he used. He’s done that repeatedly. And I think to paraphrase him, the conditions change quicker, in fairness, than most people thought that they would, and that’s true around the world as well. It’s not an easy time to set interest rates, and that’s because this challenge that we have right now with inflation is not just about too much demand in the economy. There’s a supply side challenge as well, which we need to recognise. So, again, I hope this review is not about taking shots at people. I hope it’s not about – 100 per cent about backward-looking, second-guessing decisions taken by the Reserve Bank. My interest as Treasurer is about the future and making sure we’ve got the best central bank in the world.

STEFANOVIC: He’s pulling levers. How’s he to be trusted going forward?

CHALMERS: I think we’ve got a first-class Reserve Bank and I’ve got a lot of respect for Phil Lowe. The Reserve Bank has served us well for more than six decades now. They make decisions, difficult decisions, and they defend those decisions if they find that’s necessary. My job is forward-looking, and that’s what the review is about.

STEFANOVIC: Okay. Three point three five per cent as a cash rate. Is that realistic? Is that what you’re looking at by the end of the year, by Christmas?

CHALMERS: Look, the banks make their own forecasts. There’s a set of market expectations for interest rates and the Reserve Bank Governor himself has said that interest rates will rise further, and that’s because we have got this challenge of high and rising inflation. And the Reserve Bank has said and the private banks have said there’s more interest rates to come, and I think people are bracing for that reality right around Australia. It’s hard enough to find room in household budgets to service mortgages at the same time as the price of petrol and groceries and electricity has been really high as well, so we recognise that.

When it comes to the future direction of interest rates, I don’t make predictions. I don’t pre-empt the decisions of the independent Reserve Bank, but I think it’s pretty clear that people will have to brace for more interest rate rises in the near future.

STEFANOVIC: Well, you’ve been up front about the economy since becoming Treasurer, so given all of those prices and all of the increasing pressures, will Australians see real wages rise in this term of Government?

CHALMERS: Well, it remains to be seen, Pete, but that’s certainly our objective. In the near-term, we’re going to have…

STEFANOVIC: So, maybe not.

CHALMERS: Well, we’ll have inflation spiking this year and no credible forecaster is saying that wages growth will keep up with inflation in the near-term, but all of our economic planning and objectives are around getting real wages moving again. We expect inflation to moderate next year as some of these price pressures come off. And our job – whether it’s the minimum wage that we argued for, whether it’s wage rises in the care economy, whether it’s investing in skills so people can earn more, whether it’s childcare reform so people can work more and earn more if they want to, all of our economic plan in one way or another, investing in industries… is about getting that real wage growth back in the economy, giving ourselves every chance. But a big part of it is how quickly we can get on the inflation challenge. Part of that is a job for the Reserve Bank, but there’s a role for government as well because there are issues in the supply side of the economy that we can’t ignore.

STEFANOVIC: Well I understand all the issues but your key attack line leading up to the election was everything was rising except wages, so is that argument now circling back to you?

CHALMERS: No, I don’t think so, Pete. I think people appreciate that we’re working around the clock dealing with this inflation challenge that we inherited within the constraints of the trillion dollars of Liberal debt that’s in the Budget. I think people understand that. And I think people appreciate a bit of blunt talk and a bit of real talk about the challenges that we’ve been handed, and we’re working around the clock to deal with them. Nobody expects that the issues that have emerged over nine years of a Liberal and National Government can be eliminated in nine weeks of a Labor Government. That is an unrealistic expectation. I don’t think people around Australia have that expectation. They want us to work hard to deal with these economic challenges, and that’s what we’re doing.

STEFANOVIC: Okay. Jim Chalmers, you’ve got a busy morning I know, but appreciate you squaring away some time for us. Thank you. We’ll talk to you soon.

CHALMERS: Thanks, Pete.