The Reserve Bank board considered a super-sized rate increase at its most recent meeting as well as keeping rates on hold to see if previous rate increases have curbed Australians’ spending habits.
The Reserve Bank is openly considering a halt to its sharp increase in official interest rates as previous hikes start to bite the spending power of consumers and signs emerge that inflation pressures may soon abate.from the December 6 meeting, at which the bank lifted the official cash rate by a quarter percentage point, show board members considered holding the cash rate at 2.85 per cent in the run-up to Christmas.
The bank considered a half percentage rate increase at its October, November and December meetings but only went ahead with a quarter percentage point hike. The December minutes are the first to show the bank flirting with leaving rates on hold. The minutes show the bank expects the share of income needed to keep on top of mortgages will reach levels not seen since 2008. There is likely to be a sudden increase as people with fixed rate loans, struck in 2020 and 2021, roll them over to much more expensive mortgages in the coming 12 months.
Another reason for sticking with a quarter percentage point lift was to avoid confusing Australians about the bank’s policy intentions. Westpac senior economist Justin Smirk on Tuesday said a combination of factors, including the federal cap on gas prices, meant it now expected inflation by the end of next year to be lower than forecast.
The Commonwealth Bank’s head of Australian economics, Gareth Aird, said he expects one more increase in official interest rates early next before the RBA has to reverse course by the end of 2023 with half a percentage worth of rate reductions.“The case to keep the cash rate unchanged for a period of time to assess the state of the economy and the inflation outlook is strong.”
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