The central bank has expressed concern that its repeated rate hikes could have a negative impact on employment
The Reserve Bank has expressed concerns about the potential negative impact of its recent rate hikes on employment, as households face mounting financial pressures from rising rates and cost-of-living expenses.
As Treasurer Jim Chalmers prepares to formalise a new agreement with the RBA focusing on “full employment,” minutes from the central bank's July meeting highlighted the uncertainty surrounding household consumption and the potential consequences for growth and employment resulting from the most aggressive rate-hike cycle in decades, according to a report by The Australian.
During the meeting, RBA board members discussed whether to raise rates by 0.25 percentage points or keep the cash rate at the current "clearly restrictive" level of 4.1%, The Australian reported.
Ultimately, they decided to pause the rate increases. The minutes acknowledged the risk that slower output growth could occur due to the financial strain on households, potentially resulting in a sharper decline in consumption and a rise in the unemployment rate.
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While the RBA acknowledged the need for further monetary tightening to bring inflation back to target, the board also noted that inflation had moderated from its peak but remained too high at 5.6% in the year to May. The decision to hold rates in July was described as less finely balanced than the previous hikes in May and June.
ANZ's head of Australian economics Adam Boyton expected the RBA to be on an extended pause going forward, although the possibility of a rate hike in August remained open.
“It does seem that pausing in July might have been an easier decision for the board to come to than the hikes in May and June,” Boyton told The Australian.
NAB analysts, on the other hand, anticipated two more hikes in August and September.
Investors have recently scaled back their expectations for a rate rise at the Aug. 1 board meeting, with the likelihood dropping from 91% at the beginning of the month to 25%, according to the ASX. Economists believe that the latest minutes are unlikely to significantly alter these expectations.
The minutes also said that the mortgage repayment burden is expected to increase as borrowers transition from low fixed rates to higher ones throughout the year.
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