The Reserve Bank board is gearing up for another tough decision at its upcoming meeting in May as a resumption of rate hikes weighs on another pause in official cash rates.
New data on inflation – the main reason for pressure on interest rates – will be released on Wednesday and the RBA board will meet the following Tuesday.
The official cash rate was held at 3.6 percent in April after somewhat positive job data and flat retail spending led the central bank board to refrain from an eleventh consecutive rate hike.
Australia’s Bureau of Statistics (ABS) data will release the consumer price index (CPI) for March’s third quarter on Wednesday, which will provide more data on inflation than the monthly figures.
The annual inflation rate for the December quarter was 7.8 percent. The RBA has a target of 2-3 percent for inflation.
The Reserve Bank board gears up for another tough decision at its upcoming meeting in May as they weigh the resumption of rate hikes against another pause in official cash rates
The minutes of the April Governing Council meeting, released last Tuesday, said: “Members noted that it was important to make it clear that monetary policy may need to be tightened at subsequent meetings and that the goal of pausing during this meeting was to allow time to gather more.” information.’
Strong migration rates and wage increases could also lead to another rise in the CPI, increasing the likelihood of another rate hike.
The RBA did, however, consider raising the cash interest rate by another 25 basis points in April, which would have brought the interest rate to 3.85 percent.
“This case was again based on the finding that inflation remained too high and the labor market was very tight,” the minutes read.
“It would be against the board’s mandate to tolerate a slower return to target.”
The official cash rate then determines how much interest lenders can charge; although the banks are generally two or three percent above the spot rate.
RateCity.com.au’s director of research, Sally Tindall, said while the RBA hit the pause button on hikes to collect more data, borrowers should use the deferment to get themselves a better deal.
“Every time the RBA raises the cash rate, it takes between two and three months for that extra money to get out of people’s bank accounts,” Ms Tindall said.
“The market is still incredibly competitive for borrowers looking to switch, especially if they are willing to go beyond these big banks.
“With just under $20 billion in loans up for grabs each month, most lenders are climbing over each other to win a decent slice of the refinancing pie.”
An independent report released Thursday suggested a shake-up in the way the RBA’s board operates, including meetings to set interest rates just eight times a year, and holding regular media conferences to increase accountability.
“Monetary policy processes should be more transparent, with press conferences after each meeting, papers published after five years, and board members occasionally speaking publicly about the work of the council,” the report said.
Treasurer Jim Chalmers said the government had agreed to support all 51 recommendations in principle to ensure that the “monetary policy framework is as good as possible and to increase confidence in our central bank.”
While RBA Governor Philip Lowe said he welcomed the recommendation to split into two councils: one to govern monetary policy, the other for bank governance
The official cash rate was held at 3.6 percent in April after somewhat positive job data and flat retail spending led the central bank board to refrain from an 11th consecutive rate hike
While RBA Governor Philip Lowe said he welcomed the recommendation to split into two councils: one to govern monetary policy, the other for banking governance.
“I think it’s true to say that from a number of perspectives, my current oversight arrangements as governor for the management of the bank are not up to today’s standards,” Mr Lowe said.
“So the proposed changes would help address this, and they would help me as governor manage the bank and the many complex and important functions that we perform. So I support that change.’
Isaac Gross, a lecturer in the Faculty of Economics and Economics at Monash University, predicts that despite any changes, “significant changes are unlikely to occur in the current approach to keeping interest rates relatively high.”
Rates will remain high as long as inflation is expected to remain above the target range of 2-3 percent, Gross said.
The ABS will release its March quarterly report on CPI on Wednesday at 11:30am AEST.
The next meeting of the RBA is on May 2 – the week before Dr Chalmers hands over the Albanian government’s second budget.