End Of Rate Hikes In Sight: RBA
Following its 10th consecutive interest rate hike, the Reserve Bank of Australia has hinted that the end could be near.
Speaking at the Australian Financial Review (AFR) Business Summit on Wednesday (8 March), Reserve Bank governor Philip Lowe reflected on this week’s 25-bp rate increase.
“At our Board meeting yesterday, we discussed the lags in monetary policy, the effects of the large cumulative increase in interest rates since May and the difficulties that higher interest rates are causing for many households,” Mr Lowe said.
“We also discussed that, 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.”
While he admitted that Australian households have built up considerable savings, he also noted that interest payments are increasing quickly at a time when inflation is also high.
Mr Lowe revealed that, based on the interest rate increases that have already occurred (including Tuesday’s [7 March]), total required mortgage payments are expected to reach 9.5 per cent of household disposal income later this year, which will be around a record high.
“Housing prices have also been declining, although it is difficult to determine the effect of this on spending as there had earlier been a large run-up in prices,” Mr Lowe said. “And the pool of additional savings is spread unevenly across the community. Given this wide range of factors influencing consumption, the Board will be closely monitoring the spending data at each of its monthly meetings.”
AMP head of investment strategy and chief economist, Shane Oliver, said the RBA has “done enough” and should now pause or risk “plunging the economy into a recession”.
“Inflation is still too high and the jobs market remains very tight, but inflation and the jobs market are invariably the last indicators to turn down in an economic downturn,” Mr Oliver stated.
“In particular, we are concerned that the RBA overreacted to the December quarter CPI. Letting inflation and jobs data dominate in driving monetary policy is like driving a car using the rear-view mirror.”
CoreLogic research director Tim Lawless said this rate-tightening cycle has been “both the largest and most rapid on record by some margin”.
“The cash rate setting is now 105 basis points above the pre-COVID-19 decade average (2.55 per cent),” he said, adding that this week’s hike adds roughly $160 per month to repayments on a $500,000 variable rate owner-occupier mortgage.
“Since the rate hiking cycle commenced in May, mortgage repayments on a $500,000 home loan have increased by just over $1,000 per month for owner-occupiers.”
Source: MortgageBusiness