RBA’s Lowe hints at rate hike pause
It may soon be appropriate for interest rates to "stop for a while", Reserve Bank of Australia (RBA) governor Philip Lowe has said amid mounting evidence of an economic slowdown.
The official cash rate was lifted for the tenth consecutive month at this week’s meeting RBA monetary policy board.
The central bank actioned a 25bps increase, taking the cash rate to 3.6% — the highest since May 2012.
Notably, the RBA’s post-meeting statement included key amendments to past language, hinting at an earlier than expected halt to the monetary policy tightening cycle.
Following its February meeting, the board said it expected “further increases in interest rates will be needed over the months ahead”. However, its latest statement this month omitted the reference to “increases” or adjustments “over the months ahead”.
RBA governor Lowe has now confirmed the central bank’s change of tune, confirming the likelihood of a near-term pause.
“We are closer to a pause and it's a matter of logic really, as you increase interest rates higher you get closer to the point where it is appropriate just to stop for a while and just assess the flow of data,” he told the AFR Business Summit.
“We've done a lot in a short period of time and at some point, it's going to be appropriate to sit still and assess the collective effects of that.”
Lowe said the board would carefully assess key economic data to be released ahead of the next board meeting, including monthly employment, inflation, retail spending, and business indicators.
“If collectively, they suggest that the right thing is to pause, then we'll do that. But if they suggest that we need to keep going, then we will do that,” he added. “So, we've got a completely open mind about what happens at the next board meeting.”
The shift in the RBA’s monetary policy stance came despite continued hawkishness from global counterparts, including the US Federal Reserve.
Governor Lowe’s American counterpart, Jerome Powell, recently told the US Senate the “ultimate level of interest rates is likely to be higher than previously anticipated” in lieu of “stronger than expected” economic data.
“If the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes," Powell added.
However, he noted Australians were more sensitive to monetary policy adjustments than the US.
“The other consideration that we're giving weight to is the fact that Australians have a lot of variable rate debt,” he said.
“In the US, when the Federal Reserve raises their mortgage rates, if you've got an existing mortgage, you don't pay more. In Australia, you do.”
AUTHOR
Charbel Kadib
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