The Reserve Bank of Australia’s April meeting minutes, released on Tuesday, offer a glimmer of hope for households, with one economist saying that “the end of rate rises seems to be in sight”.
The minutes showed the central bank strongly considered raising rates at its April 4 meeting before leaving the cash rate unchanged at 3.6 per cent.
This was after hiking rates by over 300 basis points across the past year, with rates rising every month from May 2022 until April 2023’s pause.
Policy director at the Australia Institute’s Centre for Future Work Greg Jericho told The New Daily: “The minutes do suggest that there was some debate over whether or not to increase rates by 25 basis points (in April)”.
Dr Jericho said that although more interest rate hikes might be on the cards, he believes the bank will need more than one month to be convinced that rates should rise again.
“The fact that they have paused, I think, means they were comfortable with probably taking more than [a] one-month break,” Dr Jericho said.
“There doesn’t seem to be much more than maybe one, or at most two, to go.
“Whether or not it is the actual end is always a brave thing to predict. But we are very much nearer the end than we were even six months ago.”
RBA ‘complacent’
Professor of Economics at UNSW Business School Richard Holden told TND the notes reveal the RBA has a “complacent” attitude to inflation and is engaging in “wishful and magical thinking”.
“It might be good short-term news for people with mortgages,” he said.
“But it’s not clear that it would be good, long-term news. Because if inflation takes hold, then there won’t be one or two more rises that get it back [under control]. It’ll [mean] much more aggressive interest rate rises.
“We’ve still got an incredibly tight labour market. We’ve still got really high inflation. [The RBA] keeps saying most households have got buffers to deal with these interest rate rises – now if that’s correct, then it says you need to go harder on interest rates to get inflation down.”
Professor Holden said to give consumers certainty, the RBA should consistently increase rates by 25 basis points each month until inflation approaches the target band.
He said a gradual approach would allow for adjustment while sending a clear message to consumers that rates would continue to increase until meaningful progress was made.
City Index analyst Matt Simpson is also pessimistic.
“Anyone who thinks the RBA will hold rates at 3.6 per cent have some cause for concern following the release of RBA April minutes today,” he wrote in a note.
He said the RBA acknowledged its usual pattern is to pause near the end of the tightening cycle without it necessarily being the end of the tightening cycle.
“Having looked back through their data, I see that there has always been a pause or more before the peak rate has been set.”
Rationale revealed
The rationale for another possible increase in interest rates beyond April, as mentioned in the board minutes, was that prices are still going up too much, and there aren’t enough available jobs.
But the case for holding the cash rate steady won out, with the board confident monetary tightening was starting to take effect.
The bank said it was waiting to see how raising interest rates affect the economy and had decided to pause because it looked like the highest point of inflation has been reached.
But the bank’s governor, Philip Lowe, warned that the bank may still hike interest rates.
“Members observed that it was important to be clear that monetary policy may need to be tightened at subsequent meetings and that the purpose of pausing at this meeting was to allow time to gather more information,” the RBA minutes stated.
The notes revealed that the board was concerned that a surge in population growth could be inflationary and that a planned increase in electricity prices would add about a quarter of a percentage point to the consumer price index over the 2023-24 financial year.
They also showed the board was concerned about an increased risk of wage growth in parts of the economy.
At next week’s meeting, the RBA board will have the updated March-quarter consumer prices index figures, which it says will be “valuable in reassessing the economic outlook and the extent to which monetary policy would need to be tightened further”.
