Reserve Bank Governor Philip Lowe has indicated that further cash rate hikes may be needed as he remains steadfast in returning inflation to the target of two to three per cent.
The board on Tuesday kept the rate on hold at 3.60 per cent after 10 consecutive rises, providing temporary relief for struggling homeowners.
But speaking in Sydney on Wednesday, Governor Lowe said the pause now gives the RBA time to reassess ahead of its next rates decision in May.
“The decision to hold interest rates steady this month was taken to give the board more time to assess the economic outlook and the impact of the increases in interest rates so far,” he said.
“Since May last year, interest rates have been increased by 3.5 percentage points.
“That’s a very large increase over a very short period of time and I acknowledge it’s been very difficult for many people.”
Prior to Tuesday’s decision, Australia had seen 10 consecutive rises since April 2022, from a historic low of 0.10 per cent.
The announcement comes after the Australian Bureau of Statistics revealed monthly inflation fell from 7.4 per cent to 6.8 per cent which had prompted speculation the RBA could pause rate hikes.
In defending the RBA’s initial response, Mr Lowe maintained they were necessary to bring inflation back down.
He conceded that the hikes have been met with hostility, but argued the alternative of a high inflation environment would be worse.
“The first increases were necessary to withdraw the pandemic era support and then the more recent increases have been required to move monetary policy into restrictive territory to deal with the highest rate of inflation that we have seen in Australia in 30 years,” he added.
“To be clear, the alternative to the recent increase in interest rates would have been more persistent inflation and ultimately even higher interest rates and more unemployment.
“So while the increases have been unwelcomed by many people, they have been necessary to preserve price stability in Australia.
“The decision to hold rates steady this month does not imply that interest rate increases are over.”
In a statement after Tuesday’s decision, the RBA said it anticipates the further tightening of monetary policy.
“In assessing when and how much further interest rates need to increase, the Board will be paying close attention to developments in the global economy, trends in household spending and the outlook for inflation and the labour market,” the RBA said.
“The Board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that.”
The Reserve Bank will next meet on May 2.
News Source: www.skynews.com.au