The Reserve Bank of Australia (RBA) has revealed what factors it is looking for in order to hit the pause button on further interest rate hikes.
The RBA has been on an aggressive rate-hiking cycle since May last year, with the average mortgage holder paying around $12,000 a year more on their home loan repayments.
But, in the most recent minutes from the RBA’s March meeting, the board revealed a pause could well be on the cards.
The board observed that higher interest rates, falling housing prices and declining real incomes - how much money people earn relative to how high prices have risen - have acted to reduce spending. This is exactly what the RBA wanted to see to slow inflation.
While the RBA noted further interest rate rises were on the cards, it said the argument for a pause in the near future was growing.
“Members noted that monetary policy was in restrictive territory and that the economic outlook was uncertain. These considerations meant that it would be appropriate at some point to hold the cash rate steady, to assess more fully the effect of the interest rate increases to date,” the minutes said.
“As part of their deliberations, members discussed the lags in the effect of monetary policy and the cumulative impact of the significant increase in interest rates since May 2022. They noted that these lags complicate the task of assessing the outlook for the economy.”
Interest rate pause could come in April
The RBA said it would be looking closely at the upcoming data releases from the Australian Bureau of Statistics on employment, inflation, retail trade, as well as business surveys from the banks.
If these data releases point to a slowing in household spending and, therefore, inflation, the RBA said it would consider a pause as early as next month.
“Members agreed to reconsider the case for a pause at the following meeting, recognising that pausing would allow additional time to reassess the outlook for the economy,” the RBA said.
“At what point it will be appropriate to pause will be determined by the data and the board’s assessment of the outlook.”