The Reserve Bank has strongly hinted that interest rates could rise again because inflation is taking longer than expected to ease.
The spot rate held at a 12-year high of 4.35 percent last month, but minutes of that meeting warned that inflation still remained stubbornly high.
“At the end of the board’s statement, members agreed that it was important to convey that the information received since the previous meeting had reinforced the need to remain alert to upside risks to inflation,” it said.
‘The current degree of uncertainty means that it is difficult to confirm or rule out future changes to the cash rate target.’
The RBA’s meeting on June 17-18 came before official data was released showing inflation in the year to May had risen by 4 percent, putting it further above the Reserve Bank’s 2 to 3 percent target.
The Reserve Bank’s latest forecasts predict inflation will fall to 2.8 percent by December 2025.
But minutes from the June meeting, released Tuesday morning, suggested inflation might take a little longer to ease.
This is bad news for the 3.8 million Australian households that have a mortgage.
The Reserve Bank has strongly hinted that interest rates could rise again because inflation is taking longer than expected to subside (pictured is Governor Michele Bullock)
“Members agreed that the collective data received since the May meeting had not been sufficient to change their assessment that inflation would return to target in 2026, despite some elevated upside risk around the forecast,” the Reserve Bank minutes said.
The word “inflation” was also mentioned 44 times in the minutes of the June meeting, compared with 47 mentions at the May meeting.
But the 30-day interbank futures market now sees a 32 per cent chance of another rate hike in August, when the RBA meets again, (up from 5 per cent on June 18, when the Reserve Bank announced its last decision).
Following the RBA’s latest meeting, Ms Bullock confirmed that her board had considered a rate hike during its two-day meeting.
“Yes, the board of directors discussed the case for raising interest rates at this meeting,” he told reporters.
Australia’s most powerful central banker also confirmed that a rate cut was not even being discussed, even though home borrowers have endured the most aggressive increases since the late 1980s.
“No, the possibility of a cut has not been considered,” he said.
The cash rate was held at a 12-year high of 4.35 percent last month, but minutes of that meeting warned that inflation remained stubbornly high.
Another rate hike would take the RBA’s cash to a new 13-year high of 4.6 percent and add $100 a month to the repayments of an average $600,000 mortgage.
Although unemployment remains low at 4 per cent, insolvencies are at their highest level since the 2012-13 financial year, which the RBA acknowledged could lead to higher joblessness.
“Members acknowledged that while the current rate of business failures as a percentage of total businesses was not unusual, a continuation of the rapid rise in insolvencies in the coming months would have adverse implications for labour demand,” the minutes said.
The Reserve Bank will meet on 5 and 6 August, following the publication of more comprehensive June quarter inflation data on 31 July.
Two of Australia’s big four banks, ANZ and NAB, now expect the Reserve Bank to delay any rate cuts until 2025.
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