RBA commits to ‘what is necessary’ to reduce inflation
The Reserve Bank of Australia (RBA) has acknowledged the full effect of interest rate rises is yet to be felt by households, as it makes another 25bps rise.
The central bank brought rates to 2.85% yesterday, its seventh rise in as many months, and said it expected further rises in the coming months to bring inflation to its 2%-3% target range.
“The board expects to increase interest rates further over the period ahead. It is closely monitoring the global economy, household spending and wage and price-setting behaviour. The size and timing of future interest rate increases will continue to be determined by the incoming data and the board’s assessment of the outlook for inflation and the labour market. The board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that.”
Two sources for uncertainty, however, for the bank were the deterioration of the global economy and the household spending in Australia. The RBA was concerned the full effect of recent rises was yet to felt in mortgage payments.
“The Board recognises that monetary policy operates with a lag and that the full effect of the increase in interest rates is yet to be felt in mortgage payments. Higher interest rates and higher inflation are putting pressure on the budgets of many households. Consumer confidence has also fallen and housing prices have been declining following the earlier large increases.”
On the flip side, households had built up large financial buffers and were gaining more hours of work and higher wages than before the pandemic.
Reacting to the rise, Harvey Bradley, portfolio manager at Insight Investment, said: “We continue to think it would take sustained upside surprises to growth and inflation data for the RBA to increase the size of hikes back to 50bps, not just one print.
“The RBA will continue to raise rates at coming meetings given the level of inflation in the economy but continue to cite the lagged impact of hikes, increased risks to the global economy and more subdued wage pressure to date as reasons to only hike 25bps with the base rate already beyond where they see neutral.”
AUTHOR
Laura Dew
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