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A senior official at the Reserve Bank of Australia has blamed the nation’s big banks for destroying consumer confidence.
Speaking at a function in Sydney yesterday, RBA deputy governor Ric Battellino said the banks’ decision to lift rates above and beyond any movements by the Reserve Bank last year had hurt consumer sentiment.
“Banks responded to the November increase in the cash rate with substantially larger increases – around 40 basis points – in interest rates on housing loans,” Mr Battellino said.
“The size of this increase, and the controversy it created, seemed to have a noticeable impact on household behaviour. Consumer confidence fell.”
But while consumer confidence continues to sit at very low levels thanks to the spate of rate hikes last year, Mr Battellino said the RBA was right to lift rates when it did and stood by its decision to raise the cash rate by 25 basis point increments in March, April, May and November last year.
“The environment for monetary policy over the past year has been challenging. As the year has progressed, the resources boom has strengthened, but the divergence between the mining and non-mining sectors of the economy has increased and the mix of growth and inflation has turned out to be less favourable than expected a year ago – i.e. there has been less growth but more inflation,” he said.
“Decisions about monetary policy through the year have sought to balance these various forces. This challenge remains. In fact, with the recent volatility in financial markets adding to the uncertainty about the economic outlook, it does not look like the challenge will become any easier over the months ahead.”