The Reserve Bank of Australia (RBA) opted to keep interest rates on hold this month, at 4.1 per cent, but RBA minutes reveal further rate rises could still be on the cards.
The RBA board discussed the case for a 0.25 per cent hike this month, as well as keeping the cash rate unchanged, which was the “stronger one”.
“Noting both the uncertainty around the outlook and the significant increase in interest rates to date, members agreed to hold the cash rate steady and reassess the situation at the August meeting,” the RBA minutes said.
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The case to increase the cash rate was based on concerns that inflation could remain above target for “an extended period” and the risk that this would be extended without further rate hikes.
Other arguments to increase the cash rate included a tight labour market and the fact that housing prices had stabilised, with prices rising once again.
As for the hold case, the board noted mortgage repayments accounted for a “record high” of 9.4 per cent of household disposable income in May and would rise further as fixed-rate loans came to an end.
In addition to inflation declining, it noted there was a risk the economy could slow more than expected.
Members said there was “considerable uncertainty about the resilience of household consumption” and the squeeze on household finances could result in a sharper curb in spending than forecast and encourage people to save more.
“If that were to occur, the demand for labour would slow and the unemployment rate would be likely to rise beyond the rate required to ensure inflation returns to target,” the minutes said.
Further rate hikes a possibility
The board agreed “some further tightening” may be required to bring inflation back to the 2-3 per cent target within a reasonable time frame.
The board said this would depend on how the economy and inflation evolved, including the additional data they would have in August on inflation, the global economy, the labour market and household spending.
“Members reaffirmed their determination to return inflation to target within a reasonable timeframe and their willingness to do what is necessary to achieve that outcome,” the minutes said.
The RBA has been aggressively hiking interest rates to try to rein in inflation, hiking the cash rate from record lows of 0.1 per cent to 4.1 per cent since May last year.