Interest rates: Budget relief plan no threat to RBA’s easing

The federal government is expected to tread carefully when it hands down the budget next month and use any surplus to tackle the cost of living crisis via energy, child care, and rent subsidies, without jeopardising the Reserve Bank of Australia’s path to cutting interest rates.

Sticky inflation is not just limited to Australia with US Federal Reserve chairman Jerome Powell signalling overnight that borrowing costs will likely remain high for longer than policymakers had expected.AMP’s senior economist, Diana Mousina, said the government, which has already pledged around $21 billion worth of tax cuts from July, needed to be careful not to add to inflation through stimulatory policies.

Jo Masters at Barrenjoey predicts the budget surplus will be split across debt repayment and cost-of-living relief. “The government has been looking for ways to support households without stoking inflation, so we expect relief to be targeted and temporary,” she added.

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