December 3, 2022

Health & Fitness Journal

Top Health and Fitness Resource

Australia’s central bank holds interest rate hikes at a slower pace, raising Health & Fitness Journal’ inflation forecast

3 min read

©Health & Fitness Journal. FILE PHOTO: Reserve Bank of Australia (RBA) Governor Philip Lowe speaks at a session of Parliament’s Economic Affairs Committee in Sydney September 22, 2016. REUTERS/Jason Reed

By Stella Qiu and Wayne Cole

SYDNEY (Health & Fitness Journal) – Australia’s central bank on Tuesday stuck to a slower pace of rate hikes for a second month while revising its inflation outlook, saying more rate hikes were needed as it struggled to keep the economy afloat and at the same time fight inflation.

To conclude its November policy meeting, the Reserve Bank of Australia (RBA) raised interest rates by 25 basis points to a nine-year high of 2.85%, the seventh hike in as many months.

It had surprised many in the markets last month by downgrading to a quarter-point rate hike after four consecutive moves of 50 basis points, citing an already significant hike in rates.

Inflation is now expected to peak at around 8% later this year, from an earlier forecast of 7.75%, and slow to just over 3% by 2024, the RBA said. That would still put it above the central bank’s 2%-3% target range.

RBA Governor Philip Lowe said in a statement that the central bank’s board is keen to bring inflation back into target range while keeping the economy on a steady trajectory.

“The path to reaching that equilibrium remains narrow and marred by uncertainty,” Lowe said, adding that the board recognizes that monetary policy operates with a lag.

The local dollar pared some of its earlier gains following the interest rate decision while short-dated bonds rallied and markets extended the chances of an outsized 50 basis point hike in December.

(Another rate hike

“The Reserve Bank has indicated a preference for ‘normal’ 25 basis point rate hikes,” said Craig James, chief economist at CommSec.

“Bigger 50bp hikes from here are more risky – more of a sledgehammer than a hammer – and likely mean hitting the rate target too quickly, leaving you on the sidelines for a few months.”

Interest rates are already up 275 basis points since May and amid heightened global uncertainty, the RBA looked to slow down and see how the sharp tightening impacts consumer spending.

However, consumer spending remained strong, the labor market remained tight and Australian inflation soared to a 32-year high in the last quarter, a shock result that fueled pressure for the RBA to return to more aggressive rate hikes.

A closely watched measure of core inflation released last week, the trimmed mean, rose 6.1% year-on-year, already beating an RBA forecast that it would peak at 6.0% in the fourth quarter.

An ANZ survey of consumers on Tuesday showed that confidence fell for the fifth straight week last week, while inflation expectations rose to the highest level in more than a decade.

CLOUDY OUTLOOK

The RBA was the first central bank in the developed world to break with outsized rate hikes and warned that budgets were already under pressure from rate hikes.

(The race to raise interest rates

The rate hikes already implemented will add about A$950 to the monthly repayment of the average A$600,000 mortgage, a deadweight blow for a population holding A$2 trillion (US$1.3 trillion) in home loans.

Australian house prices fell for the sixth straight month in October, with the fall spreading to all major cities and regions, which weighed on household wealth and could dampen confidence and consumption over time.

“It is crystal clear that the RBA is now focused on developments in the housing market. And their tightening cycle from here will determine how far house prices fall further,” said Gareth Aird, CBA’s head of Australia’s economy.

The RBA on Tuesday revised downwards its forecast for economic growth to average around 3.0% this year and 1.5% for 2023 and 2024.

Elsewhere, there are signs of a turning point in the global tightening cycle. The Bank of Canada slowed the pace of rate hikes and said it was nearing the end of its historic tightening campaign. While the European Central Bank hiked rates as expected, it was cautious about the outlook.

Copyright © All rights reserved. | Newsphere by AF themes.