RBA sees rates getting close to normal - minutes

It comes after raising benchmark for fourth straight month

RBA sees rates getting close to normal - minutes

by Michael Heath

Australia’s central bank said interest rates are getting closer to “normal settings,” according to minutes of its Sept. 6 meeting when it raised the benchmark by a half-percentage point for a fourth straight month.

“The board expects to increase interest rates further over the months ahead, but it is not on a pre-set path given the uncertainties surrounding the outlook for inflation and growth,” the Reserve Bank said Tuesday in a record of this month’s meeting, where it raised the cash rate to 2.35%. 

The minutes showed the central bank discussed the arguments around raising rates by a quarter-point or half-point.

Economists are beginning to split over next month’s decision, with Westpac Banking Corp., TD Securities and National Australia Bank Ltd. switching to half-point calls from prior expectations of a quarter-point. They cited testimony from Governor Philip Lowe Friday that suggested ongoing concern about inflation pressures.

The minutes come as a raft of global central banks meet, kicking off Tuesday with Sweden’s Riksbank seen raising by 75 basis points and followed Wednesday by the Federal Reserve that’s expected to hike by the same amount. 

Only Japan on Thursday is seen standing pat and clinging to the world’s only negative policy rate.

“The outlook for global economic growth had deteriorated and posed a key uncertainty,” the RBA said in the minutes.

“Central banks in several large advanced economies had expressed further resolve in tightening monetary policy to prevent high inflation from becoming entrenched, and this was likely to entail a period of significantly lower growth.”

Lowe has overseen the sharpest tightening cycle in a generation and has highlighted a very tight labour market and resilient household spending to argue the economy can absorb the moves.

Like much of the developed world, Australia is trying to rein in inflation that’s expected to peak just under 8% late this year.

“Given the importance of returning inflation to target, the potential damage to the economy from persistent high inflation and the still relatively low level of the cash rate, the board decided to increase the cash rate by a further 50 basis points,” the RBA said.

 

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