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RBA Governor hints at smaller interest rate hikes possibly in the near future

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Reserve Bank of Australia Governor Philip Lowe has signaled the central bank may move to lower interest rate hikes after a rapid series of outsized hikes, while rejecting calls for his resignation.

After delivering the fastest rate hikes since 1994, Mr Lowe said rates would rise in the coming months, but hinted that the streak of double hikes could soon end.

“We recognize that there is a backlog in monetary policy and that interest rates have risen very quickly in recent months,” he said in a major speech on Thursday.

“And we recognize that, other things being equal, the case for a slower pace of interest rate increases gets stronger as the money rate rises.

“But how high interest rates should go and how quickly we should get there will continue to depend on incoming data and the changing outlook for inflation and the labor market.”

Interest rates are expected to rise further, but the streak of double hikes may soon come to an end. Photo: Getty


Mr Lowe said the RBA’s board was committed to doing what was necessary to tackle the “scourge” of high inflation and ensure inflation returned to the 2-3% target range over time.

“It is important that this current spike in inflation is only temporary and that we return to the 2-3% range again.”

On Tuesday, the RBA raised the cash rate by another 50 basis points, the first in five consecutive months and an unprecedented fourth consecutive double hike.

The RBA has now raised rates by 225 basis points from May to lift the cash rate to 2.35%, the highest level since January 2015.

Mr Lowe noted that households were juggling higher rates and the rising cost of living has yet to feel the full impact of the RBA’s rapid hikes.

“We are very aware that there is a lag in monetary policy and the effect of the rate hikes we have already made is not yet visible in household mortgage payments and that will happen over the next 12 months.

“As this happens, along with continued high inflation putting pressure on people’s budgets, there will be tough times for some households. We know that.”

Economists at three of Australia’s four biggest banks expect the RBA to to slow the pace of rate hikes from here and return to smaller “business as usual” movements of 25 basis points in October.

While ANZ still expects another 50 basis point hike in October, ANZ senior economist Adelaide Timbrell said Mr Lowe predicted smaller rate rises in the near term.

ANZ now expects November’s rate hike to be a smaller 25 basis points, pointing to a next move of the same size in December to increase the cash rate to 3.35%.

“We recognize that there is a significant risk that the RBA could slow its hike to 25 basis points in October, in which case we expect a further 25 basis point hike early next year, leaving the terminal rate at 3.35%.” , — Mrs. Timbrell. said.

Economists of the big four banks predict that the cash rate will rise to at least 2.85% and even to 3.35%.

RBA governor responds to critics

As the RBA faces a wide-ranging independent review and comes under fire for suggesting that interest rates will not rise until 2024, Mr Lowe has also hit back at his critics.

The cash rate was cut to a record low of 0.1% as part of emergency measures to support the economy during the pandemic, and many homebuyers expected rates to remain on hold until 2024 based on RBA guidance until the end of November last year.

Mr. Lowe said he never promised that interest rates would not rise until 2024, but rather the board made a very tentative statement that it would likely keep rates low for a long period of time until 2024.

“We didn’t promise.

“The health situation has improved much faster than the advice we and others have been given and we have had to reverse the interest rate cuts.

“Obviously the community has had a hard time accepting that interest rates have risen much faster.”

Reserve Bank of Australia Governor Philip Lowe pictured in May 2022.

RBA Governor Philip Lowe says he has no plans to resign. Photo: Getty


Mr Lowe said the economy was performing much better than initially expected, with unemployment at a 50-year low.

“You have to welcome the strengthening of the economy, and that’s what I would say to people who are unhappy with a ‘promise’ that wasn’t a promise.”

As for calls for his resignation from the likes of Greens Treasury spokesman Senator Nick McKim, Mr Lowe made it clear he was not going anywhere.

“I can assure you that I am not going to resign,” Mr. Lowe said.

Mr Lowe said the higher inflation was partly due to the “insurance policy” the RBA board took out during the pandemic, but the economy and society would face very high costs if the board did too little.

“I think we made the right choice. We provided insurance to the community based on the health advice we had.

“It turns out we don’t need as much insurance and we have to raise interest rates, but people have jobs, kids have opportunities, family incomes are growing.

“That’s what I would say to people who don’t like me and my work.”

Aerial view of houses, streets and parks in the Sydney suburb of Ermington

Since May, the RBA has sharply increased interest rates, which has led to lower house prices. Photo: Getty


Last year, the RBA forecast inflation of just 1.75% from 2022, but it is now expected to be around 7.75%, which Lowe said was a “very big miss”.

“Forecast breaches of this magnitude should lead forecasters to introspect, and they certainly did at the RBA.”

Mr Lowe said the RBA’s board was faced with choices and trade-offs, and given that flexibility, the bank’s performance could be difficult to gauge at any given time.

“I hope the review will provide another opportunity to examine how the RBA has managed these trade-offs in the past and how it might manage and interpret them in the future.”

Federal Treasurer Jim Chalmers said the government-commissioned review of the RBA was aimed at getting the right structure and objectives for the central bank.

“My review of the Reserve Bank is not some sort of witch hunt,” Dr Chalmers said on Thursday.

“It’s not about shooting anybody.”

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