The Reserve Bank of Australia (RBA) is leaving the door open for more interest rate hikes if inflation continues to be a problem.
Minutes of the October meeting, released today, reveal that RBA members believe some further tightening of policy may be required in the future.
Board members highlighted they plan to return inflation to target levels and will do whatever is needed to achieve this result.
“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 risk,” the minutes stated.
“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 notes show members of the board considered two options—raising the cash rate by 25 basis points or holding it steady. Ultimately, they decided to keep interest rates on hold at the October meeting.
The RBA highlighted the challenging impact of inflation and interest rates on Australian households but said, “most households and businesses were managing to adjust.”
“Strong labour demand and sizeable savings buffers accumulated during the pandemic had helped households to adapt to the increase in interest rates and inflation. Mortgage and business loan arrears had picked up, but only slightly,” the minutes stated.
Board members also highlighted that hikes in retail petrol prices will continue to impact inflation in future months.
“Members acknowledged that upside risks were a significant concern given how long inflation is likely to remain above target,” they said.
ANZ economists, however, are not predicting a rate rise at the November meeting on Melbourne Cup day.
“Our view is that a rate rise in November would require an uncomfortably high CPI print, possibly combined with some sign of strength in the labour market,” ANZ head of Australian economics Adam Boyton said in a research note.
Consumer Confidence Down
Meanwhile, consumer confidence has fallen in New South Wales, Victoria, Queensland, and South Australia.Overall, consumer confidence is 5.8 points lower than the corresponding week one year ago.
Only Western Australia defied the trend, with consumer confidence slightly higher in that state.
ANZ senior economist Adelaide Trimbell said the weakness in confidence was broad-based, with declines across all subindices.
“Among the housing cohorts, confidence plunged for those paying off their homes (-7.2 points), reversing the gains of the previous two weeks,” Ms. Trimbell said.
“It fell for outright homeowners as well (-3 points), while it rose slightly for those renting (+1 point). Inflation expectations rose despite heavier than usual retail sales activity in October as well as a two-year low in price pressure measures in the NAB Business Survey.”
