SYDNEY, Nov 1 (Reuters) – Australia’s central bank on Tuesday stuck with a slower rate of interest rate hikes for a second month as it revised down its inflation forecast, saying more rate hikes would be needed as it struggles to keep a struggling economy afloat. inflation.
Concluding its November policy meeting, the Reserve Bank of Australia (RBA) raised its cash rate by 25 basis points to a nine-year peak of 2.85%, the seventh increase in as many months.
It surprised many in the market last month by switching to quarter-point gains following four consecutive moves of 50 basis points, citing already significant rate hikes.
Inflation is now expected to peak at around 8% by the end of the year, up from a previous forecast of 7.75%, and slow to just above 3% in 2024, the RBA said. That would still leave it above the central bank’s 2% to 3% target range.
RBA Governor Philip Lowe said in a statement that the central bank’s board was working to return inflation to the target range while keeping the economy on the same level.
“The path to achieving this balance remains narrow and it is shrouded in uncertainty,” Lowe said, adding that the board recognized monetary policy was operating with a lag.
The local dollar pared some earlier gains after the rate decision, while short-term bonds rose and markets extended the chance for a 50 basis point hike in December.
“The Reserve Bank has indicated a preference for a ‘normal’ rate hike of 25 basis points,” said Craig James, chief economist at CommSec.
“A bigger 50bp hike from here is more risky – a sliding hammer than a hammer – and is likely to mean the interest rate objective is reached too soon, causing a move to the sidelines for several months.”
Rates have risen by 275 basis points since May and the RBA has wanted to slow down and see how drastic tightening affects consumer spending, against a backdrop of rising global uncertainty.
However, consumer spending remained strong, the job market remained tight and Australian inflation hit a 32-year high last quarter, a surprise result that stoked pressure for a return to more aggressive rate hikes by the RBA.
A closely watched measure of core inflation released last week, the trimmed average, rose 6.1% from a year ago, already beating the RBA’s forecast that it would peak at 6.0% in the fourth quarter.
ANZ’s survey of consumers on Tuesday showed confidence fell for a fifth consecutive week last week, while inflation expectations jumped to the highest level in more than a decade.
The RBA is the first central bank among advanced economies to halt excessive interest rate hikes, warning that households are already under pressure with rate hikes so far.
The rate hikes that have been delivered will add about A$950 a month in repayments to the average A$600,000 mortgage, a dead weight for residents holding A$2 trillion ($1.3 trillion) in home loans.
Australian house prices fell for a sixth consecutive month in October with the decline spreading to every major city and region, a drag on household wealth that could curb confidence and consumption over time.
“It is clear that the RBA is now focused on developments in the housing market. And their tightening cycle from here will determine how much more house prices will fall,” said Gareth Aird, chief Australian economist at CBA.
The RBA on Tuesday revised its forecast for economic growth to an average of around 3.0% this year and 1.5% for 2023 and 2024.
Signs of a pivot in the global tightening cycle are appearing elsewhere. The Bank of Canada is slowing the pace of its rate hikes, saying it is nearing the end of its historic tightening campaign. The European Central Bank, while raising rates as expected, sounded a note of caution on the outlook.
Reporting by Stella Qiu and Wayne Cole; Editing by Edmund Klamann
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