Rate rise pause in sight
Lowe: Inflation still remains too high
HOMEOWNERS hoping for a reprieve to interest rate rises have been told a pause is in sight despite the Reserve Bank governor warning inflation remained too high.
A day after the bank lifted the official cash rate to an 11year high of 3.6 per cent, governor Philip Lowe outlined the environment required for the RBA to stop the aggressive hiking cycle.
Employment figures and monthly inflation data released later this month would help firm up whether a pause was possible, he said.
“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,” Dr Lowe told the AFR’s business summit. “So we’ve got a completely open mind about what happens at the next board meeting.”
Since May, the central bank has raised rates from a record low of 0.1 per cent in a bid to deal with runaway inflation.
Inflation reached a threedecade high of 7.8 per cent in December, well above the RBA’s target rate of between 2 and 3 per cent.
In his address to the conference, the governor argued more rate rises were still possible as inflation remained too high, suggesting it would fall back to the central bank’s target range in 2025.
While Dr Lowe said the board was “closer” to a rate pause, he said “further tightening of monetary policy is likely to be required to bring inflation back to target within a reasonable time frame”.
“Inflation is still too high, and while it looks to be on a declining path, it is likely to remain higher than target for a few years. If we don’t get inflation down fairly soon, the end result will be even higher interest rates and more unemployment,” he said.
“With monetary policy now in restrictive territory, we are closer to the point where it will be appropriate to pause interest rate increases to allow more time to assess the state of the economy.
“At what point it will be appropriate to pause will be determined by the data and our assessment of the outlook.”
Treasurer Jim Chalmers on Wednesday morning said the government believed inflation was beginning to moderate. “We think inflation has peaked, there are encouraging signs … but we think it has, and inflation will moderate over the course of the next 12 to 18 months,” Dr Chalmers told ABC Radio.
“It has been stubborn, and it has been higher than we’d like for longer than we’d like.”
As interest rates reach a decade high, the RBA forecasts mortgage repayments will consume 9.5 per cent of household disposable income later this year.
Consumer spending was
showing signs of slowing as household budgets struggled under the aggressive rate hiking cycle.
“More fundamentally, the combination of cost of living pressures, higher interest rates and the decline in housing values is weighing on consumption,” Dr Lowe said.