Australia’s central bank said on Wednesday that monetary policy is tight and the current interest rate is causing financial pain for many households, but it cannot rule out further tightening if needed to curb inflation.
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Australia’s central bank said on Wednesday that monetary policy was constrained and the current interest rate was causing financial hardship for many households, but it could not rule out further tightening if needed to curb inflation.
Speaking on the banking industry in Melbourne, RBA Assistant Governor Christopher Kent said interest rates of 4.35% had contributed to slower demand growth and lower inflation.
“We know that many are feeling painful pressure on their finances due to rising interest rates,” Kent said, noting that mortgage payments have already risen to a record high of 10% of household disposable income.
Kent said interest rates were clearly higher than all estimates of the neutral rate – which neither stimulates nor retards economic growth.
The Reserve Bank of Australia has raised interest rates by 425 basis points since May 2022, but has held steady for five straight meetings with inflation reaching 3.6%, well above the 2%-3% target range.
Reserve Bank of Australia Governor Michelle Bullock earlier this month told reporters that restrictive policy is one reason policymakers have been reluctant to raise interest rates further. Policy meeting in June.
Markets see only a modest chance of interest rate cuts until April next year, and only 43 basis points of easing is priced in by the end of 2025.
Kent stressed that the central bank is in no hurry to ease monetary policy.
He reiterated that “although recent economic data has been mixed, it has reinforced the need to remain vigilant against upside risks to inflation.”
“Therefore, in terms of the path of interest rates, the Reserve Bank Board is not ruling anything in or out.”