Key Points
- Philip Lowe, the outgoing governor of the Reserve Bank, faced his final parliamentary hearing on Friday morning.
- He said further interest rate hikes could be on the horizon if inflation remains strong.
- The hearing is one of his last appearances as RBA governor, with Michele Bullock stepping into the job in September.
The head of the Reserve Bank has urged Australians to shop around for bank deals and said the RBA will "do what is necessary" to bring down inflation.
On Friday morning, outgoing boss Philip Lowe was questioned at a parliamentary hearing, which will be among his last public appearances in the role.
These were some of the key questions.
Are rising interest rates good for banks?
Asked if Australian banks are profiteering from rising interest rates, Lowe said he could understand why people were asking questions following Commonwealth Bank's record profit of $10.2 billion.
He said the return on equity for Australian banks was high but not out of line with overseas or other companies.
"Over the past year, in most major economies, banks are earning between 10 and 15 per cent return on equity at the moment because write-offs are low, because problem loans are low, and because unemployment rates are very low".
But he said there were concerns about competition across deposit products, which was a common trend around the world.
"So if you don't like the fact that banks are earning so much money, then I encourage you to shop around and make them work harder for your money," he said, noting some banks were paying more than five per cent interest on deposits.
Could rent control be considered in the cost-of-living crisis?
Lowe also offered his thoughts on rent controls, which have been .
He said rent controls reduce the incentive to add to supply in most cases.
"It might help in the short run, it might relieve some pressure on people in the short run, and clearly that's the case.
"But we've got to keep a medium-term perspective on this - will it add to the supply of rental accommodation over time? My judgement would be that it would not."
Will there be more rate rises?
The central bank has hiked interest rates 12 times since May last year but has for two months in a row, fuelling speculation the peak has been reached.
Lowe noted interest rates had been jacked up a lot in a short period, and cash rate movements take time to work through the economy.
It is "possible that some further tightening of monetary policy will be required to ensure that inflation returns to target within a reasonable timeframe", he said.
Lowe said the RBA board remains determined to return inflation to the 2 to 3 per cent target range within a reasonable timeframe, and "will do what is necessary to achieve that outcome".
He said economic data lined up with Australia travelling down the "narrow path" he had been speaking about for some time.
But he said there were two main risks complicating this scenario.
The first was household consumption, which, on one hand, has been supported by the strong labour market, and on the other, was under pressure from declining real incomes and higher borrowing costs.
There was also a risk of services inflation staying high due to strong demand for services in the wake of the pandemic, stronger growth in nominal wages and incomes and weak productivity growth.
Lowe's tenure as RBA governor will end in September, with deputy governor Michele Bullock stepping into the position.
Bullock and other senior officials also attended the hearing.
