This article is from the Australian Property Journal archive
IN line with most forecasts, Michele Bullock didn’t raise the cash rate at her first meeting as the new governor of the RBA, though fears remain that a pre-Christmas hike could still be on the cards.
With the cash rate paused since June at 4.1%, borrowers have been granted another small reprieve, as annual inflation hit 7% as the CPI grew by 5.2% in August, according to the latest Australian Bureau of Statistics quarterly figures.
“The higher interest rates are working to establish a more sustainable balance between supply and demand in the economy and will continue to do so,” said Bullock, in her first meeting replacing former governor Philip Lowe.
“In light of this and the uncertainty surrounding the economic outlook, the Board again decided to hold interest rates steady this month. This will provide further time to assess the impact of the increase in interest rates to date and the economic outlook.”
The comes as ABS data last week revealed retail spending was up just 0.2% over August, compared to 1.5% of growth in the same month last year, with real per person retail sales down 4.5% or so on a year ago, as Australian consumers are forced to tighten their purse strings.
“Some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable time frame, but that will continue to depend upon the data and the evolving assessment of risks,” added Bullock.
According to the RBA, recent data is consistent with inflation returning to the 2% to 3% target range over the forecast period of late 2025.
“While the risks of additional RBA action might be rising we see nothing in today’s decision or statement to push us off our view that the RBA is on an extended pause as it examines how the monetary tightening to date washes through the economy,” said Adam Boyton, head of Australian economics at ANZ.
Sally Tindall, research director at RateCity.com.au, also warned Australian households not to relax too much with the fourth consecutive pause.
“The cash rate might be on hold, but major expenses such as electricity, petrol and insurances are still on the rise, putting extra pressure on household budgets at a time when many are already at breaking point,” said Tindall.
“If the central bank is going to move in the next six months, it’s more likely to be a hike, rather than a cut, because for the bank, taming inflation is a non-negotiable. If you need financial relief, you’ll need to go and get it yourself.”
While Shane Oliver, head of investment strategy and chief economist at AMP Capital, the RBA’s post meeting statement had hardly changed under its under new leadership
“Our concern remains that the RBA may have tightened more than necessary with a high (50%) risk of recession,” said Oliver.
“As a result, while the risk is still on the upside for the cash rate in the short term with 40% chance of another hike by Christmas, the RBA probably won’t have to act on its tightening bias, and we continue to see it cutting rates through next year starting around June.”
“We would view another rate hike as a mistake as the RBA has already done more than enough to slow the economy in order to rebalance demand and supply and bring inflation back to target.”
