Australia’s recent interest rate increases are beginning to weigh on consumer spending and broader economic activity, although inflation remains elevated and the Reserve Bank of Australia (RBA) has kept the door open to further tightening.
RBA Assistant Governor Christopher Kent said on Thursday that the three cash rate increases delivered earlier this year were having their intended effect as tighter financial conditions began to slow demand.
“It would take some time for tighter monetary policy to have its full effect on economic activity and inflation,” Kent said at a Reuters NEXT Newsmaker event in Sydney.
The RBA kept its cash rate at 4.35% this week after raising it by 75 basis points since February to contain persistent inflationary pressures.
Kent said housing credit growth, which tends to move closely with house prices, had also started to slow, with a noticeable decline in new home lending.
“Financial conditions overall were somewhat restrictive,” he said, adding that the current cash rate was around the top end of the range of central estimates for the neutral rate.
However, uncertainty remains over where the neutral rate sits, while inflation continues to exceed the RBA’s target range of 2% to 3%.
Core inflation stood at 3.6% year-on-year in the June quarter, keeping pressure on policymakers to ensure price growth continues to moderate.
RBA Governor Michele Bullock said earlier this week that the board remained concerned inflation may not ease as expected and was prepared to raise rates again if necessary.
Markets are pricing in about a 75% chance of another 25-basis-point increase to 4.60% by December, although investors expect that could mark the end of the tightening cycle.
Reuters
