Reserve Bank Board Meeting: raise interest rates gradually
2022-07-21
■ RBA realized that according to the current employment and price situation, the policy interest rate is extremely low
■ Due to the risk that interest rate hikes bring to business and households, The Australian Fed will continue to raise interest rates by 0.50%.
July 19, RBA announced the agenda for the board meeting held on the 5th. The board of directors raises policy rate from 0.85% to 1.35%. However, a 0.25% rate hike was also considered. From the perspective of a tight labor market and the economy facing price rises that the interest rate is extremely low. In addition, as a benchmark for evaluating the stance of monetary policy, a "neutral interest rate" that neither stimulates nor depresses the economy was also discussed. Inflationary expectations are sufficiently fixed, high inflation is temporary that is very important. The policy rate of 1.35% is judged to be lower than the end of the forecasted nominal neutral rate. This implies that the need for further interest rate hikes.
Central Bank Deputy Governor Brock said that considering the risk of increased household repayment burden such as fixed interest rates on mortgages will affect the speed and magnitude of interest rate hikes in his speech yesterday. So that he is cautious about raising interest rates. However, considering that "household savings reached $260 billion could cope with rising interest rates on residential loans”, he asked for an understanding of the additional rate increase. Central Bank Governor Rowe said this morning “it’s important that as the high inflation in doesn’t affect the inflationary expectations of businesses and households, so the policy rate may need to rise to a neutral level of at least 2.5%. “. The Consumer Price Index is expected to accelerate furtherly in April-June which will be released next week on the 27th. In addition, if the export and import prices maintain the improvement in trading conditions which released in 28th, RBA will also decide on a 0.50% rate hike for the third consecutive meeting on August 2.