Reserve Bank warning MORE interest rate rises could be on their way

Delaying the rate hike on Melbourne Cup Day would have raised the risk of interest rates rising more aggressively in coming months, Reserve Bank minutes show, but more rises could follow.

The RBA noted in its November 7 board minutes published on Tuesday that its updated economic forecasts, which show inflation returning to the central bank’s target range of 2 to 3 percent by the end of 2025, were based on “one or two” further interest rates. rises.

Despite acknowledging that some households were facing ‘painful pressure on their finances’, the RBA opted to raise interest rates for the thirteenth time since May 2022 to 4.35 per cent, the highest level since 2011.

Given the proposal to leave the cash rate unchanged at 4.1 percent, the board said inflation was easing and the geopolitical outlook remained uncertain. In doing so, it noted that the escalation of the conflict in the Middle East would likely “dampen consumer confidence and global demand.”

However, the central bank said the case for raising again was stronger as the RBA said in previous statements and speeches it did not want inflation to stay higher for longer.

“Delaying such an adjustment would risk requiring a greater monetary policy response in the coming months, especially if inflationary pressures prove stronger than expected,” the minutes said.

The board said that “there was a risk that inflation expectations could rise” if it “left the cash rate target unchanged… especially given the board’s repeated statements that it has a low tolerance for a return of inflation to the intended goal after 2025′.

Adding to the case for a rate hike were signals that domestically generated demand was increasing inflationary pressures across the economy.

“This strong demand allowed companies to pass on higher costs for labor and non-labor inputs,” further fueling inflation.

While noting the pressure on borrowers, the minutes noted that banks had seen ‘no significant increase in the number of households experiencing difficulties in meeting their mortgage payments’.

“More generally, members noted that fixed-rate borrowers tended to take out variable-rate loans without a noticeable negative impact on their ability to repay their loans,” the minutes said.

The board remained “firm in its determination to return inflation to target levels and will do whatever is necessary to achieve that result,” but another rate hike was not guaranteed, the minutes said.

‘Members agreed that whether further monetary policy tightening is necessary to ensure that inflation returns to target within a reasonable timeframe will depend on how incoming data shape the economic outlook and the developing risk assessment will change.’

During a panel discussion on Tuesday morning, RBA Governor Michele Bullock noted that Australia’s “critical challenge” to inflation was not purely caused by supply-side shocks.

Despite acknowledging that some households were facing “painful pressure on their finances”, the RBA opted to increase interest rates for the thirteenth time since May 2022 to 4.35 percent, the highest level since 2011. photo shows a house with a ‘sold’ sign.

“There’s a bit of a perception that inflation at the moment is really just a supply-driven thing – petrol prices, rents, this sort of thing, energy – but actually there’s an underlying demand component to it too,” Ms Bullock says. told the annual ASIC forum.

“But there’s actually an underlying demand component to it and that’s what central banks are trying to get on top of.”

The RBA will receive new monthly inflation data next week before its eight-member board meets for the final time this year on December 5. However, money markets estimate a less than one in ten chance of a rise next month.

Nevertheless, economists and investors expect that a rate hike in February remains an option for the central bank.

KEY POINTS FROM THE NOVEMBER RESERVE BANK OF AUSTRALIA MEETING NOULS

* The Reserve Bank board considered both a 25 basis point increase and a further month’s deferral at its November meeting. The argument for eliminating the cash rate was considered the strongest

* On the international stage, inflation was still the biggest concern for central banks in advanced economies

* Nationally, inflation is declining from its peak, but underlying inflation was stronger than expected a few months earlier

* Inflation has been fueled by price increases for a wide range of consumer goods and services: ‘There was clear evidence – particularly for services price inflation, which was quite high – that this was due to domestically generated pressures linked to the fact that total demand exceeded total supply. ‘

* Spending held up better than expected a few months earlier. The recovery in international student and tourist numbers supported demand for consumer-facing businesses and partially offset the decline in resident spending

The Reserve Bank of Australia has released the minutes of its November meeting. The photo shows a woman’s hand taking money from a wallet

* Mortgage payments rose further in the September quarter to approximately 10 percent of household disposable income

* Still, there was an increase in the number of additional payments on settlement and redraw accounts in the September quarter, and the share of borrowers withdrawing these balances had remained stable over the year

* Board members at the meeting discussed an updated set of economic forecasts prepared by RBA staff, which did not see inflation returning to the top of the target range until late 2025, slightly later than expected in August.

* Members also noted that these forecasts were based on assumptions of another one to two increases in cash rates in coming quarters, and that productivity growth would recover in the coming year

* Inflation expectations had also risen, with staff modeling showing that even modest further increases would make it “significantly more challenging and expensive to return inflation to target in a reasonable timeframe.”

* The case was postponed for another month due to clear signs of a slowing economy and the risk of geopolitical uncertainty, including the conflict in the Middle East, dampening consumer confidence and global demand

* Strong population growth also makes it difficult to measure the level of underlying resilience of the economy

*The same softened language was used regarding more rate hikes as in recent communications: ‘Members agreed that the question of whether further monetary policy tightening is necessary… would depend on how incoming data shape the economic outlook and developing economy will change. assessment of risks’