Al-anwar Newspaper English news in Australia
Mortgage holders will soon be forking out a record high on repayments as the Reserve Bank of Australia all but locked in another interest rate rise for March.
The RBA on Tuesday released the minutes of its February meeting where it raised the official cash rate – which guides interest rates set by lenders – up 25 basis points to 3.35 per cent.
The minutes showed the central bank mulled over whether a 25 or 50 basis point rise was appropriate. In the end it opted for the former, stating there was “less need” for the latter given the previous nine consecutive hikes.
“The arguments … noted that inflation was expected to have reached its peak, that the outlook was for a softening in consumption growth and that there were many uncertainties around the outlook” the minutes said.
The case for the 50 basis point rise stemmed from concern high inflation would remain “persistent” and if so, “greater the risk of price and wage expectations moving higher”.
It’s a noticeable shift from when the board last met in December, when it entertained the idea of keeping the cash rate on hold.
The minutes noted the concern that households with variable rate loans would soon be hitting record highs but insisted savings acquired during the pandemic could hold them over.
“Interest rates on variable rate home loans had risen substantially over preceding months and required mortgage payments were projected to reach their highest level on record (as a share of household disposable income),” the minutes said.
“Nonetheless, members noted that measures indicate the extra savings accumulated in Australia over the preceding three years were very large.”
The RBA has followed other central banks around the world in aggressively raising rates in a bid to tame runaway inflation, which reached 7.8 per cent in December in Australia, its highest level since 1990. Board members concluded that inflation “remained too high” and the incoming data on prices and labour costs had “tended to exceed expectations”. concern for the central bank board was the strength of wage growth in the private sector which had been a “stronger outcome than previously forecast was expected for the December quarter”.
“This was supported by information from liaison contacts, with around one-third of private sector firms reporting wage increases above 5 per cent. Growth in the Wage Price Index was expected to rise to 4.25 per cent by late 2023, before easing to around 3.75 per cent by mid-2025 as conditions in the labour market ease,” it said.
“Members noted the high degree of uncertainty around this forecast.”
The minutes also showed the bank’s economic forecast is based on the cash rate reaching 3.75 per cent. Ahead of the release, financial markets predicted it would hit 4.1 per cent by August.
But the board also noted that depending on how households respond to rate rises, inflation could fall quicker than expected.
“Consistent with this, members agreed that further increases in interest rates are likely to be needed over the months ahead to ensure that inflation returns to target and that the current period of high inflation is only temporary,” it said.
