The Reserve Bank has strongly hinted it could raise interest rates again on Melbourne Cup Day because it had ‘low tolerance’ for inflation staying high for too long.
The dark warning was contained in the minutes of the RBA’s October meeting minutes – the first that Michele Bullock presided over as governor.
The cash rate was this month left at an 11-year high of 4.1 per cent but the minutes hinted rates could go up again for the 13th time since May 2022 because inflation was still too high.
The minutes said: ‘In reaching their decision, members noted that some further tightening of policy may be required should inflation prove more persistent than expected.
‘The board has a low tolerance for a slower return of inflation to target than currently expected.
‘Whether or not a further increase in interest rates is required would, therefore, depend on the incoming data and how these alter the economic outlook and the evolving assessment of risks.’
New Reserve Bank governor Michelle Bullock
The hawkish language in the minutes is more forthright than the words used by Ms Bullock’s predecessor Philip Lowe and has echoes of her June speech to business leaders in Newcastle where she said: ‘It might be much easier just to jack up interest rates.’
Inflation in August rose to 5.2 per cent, up from 4.9 per cent in July, marking the first monthly deterioration in the consumer price index since April, despite the Reserve Bank raising rates at the most severe pace since 1989.
This put inflation further above the RBA’s two to three per cent target, and the Reserve Bank doesn’t expected the CPI to fall back within that zone until mid-2025.
ANZ head of Australian economics Adam Boyton said a high inflation reading for the September quarter, on October 25, could spark a November rate rise.
‘The November meeting appears quite “live”,’ he said.
‘Our view is that a rate risein November would require an uncomfortably high CPI print, possibly combined with some sign of strength in the labour market.’
The Reserve Bank’s October 3 meeting took place four days before the Hamas terrorist attack on Israel, that has stirred fears of higher crude oil and petrol prices.
Petrol prices in the year to August surged by 14 per cent, with E10 unleaded petrol now selling for more than $2 a litre.
The Reserve Bank’s October 3 meeting took place four days before the Hamas terrorist attack on Israel, that has stirred fears of higher crude oil and petrol prices. Petrol prices in the year to August surged by 14 per cent, with E10 unleaded petrol now selling for more than $2 a litre (pictured is a Sydney service station)
But AMP chief economist Shane Oliver said higher petrol prices would just see consumers cut back on spending, giving sellers less scope to pass on price rises like they did in early 2022 when Russia invaded Ukraine.
‘A further surge in oil & petrol prices is more likely to be a “tax on spending” than a further boost to inflation and hence be deflationary which will make it very hard for higher fuel and transport costs to be passed on to consumers beyond the direct impact of the increased price of petrol,’ he said.
‘This means it mainly will add to the risk of recession.’
Credit check firm illion said even with no rate rises, consumers would be struggling to pay off their credit cards, with stress levels rising by 11 per cent during the last financial year.
The RBA rate rises so far have led to a rise in credit card and home mortgage delinquencies, where a borrower is 30 days or more behind on their repayments and bills.
Source: | This article originally belongs to Dailymail.co.uk
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