RBA Keeps the Door Open to a Fifth Rate Increase This Year

what happened

Newsmetry API reports that the Reserve Bank of Australia has kept open the possibility of another interest-rate increase after several inflation risks identified earlier began to emerge. In minutes from its September policy meeting released Tuesday, the central bank said it would continue taking the steps it deemed necessary to restore low inflation, including raising the cash-rate target again if required.

The wording points to a possible fifth rate increase this year at the November meeting. Many economists are concerned that upcoming third-quarter inflation figures will show monetary policy is not restrictive enough. Inflation has stayed above the RBA’s 2.5% target for some time, while the minutes said the balance between inflation and full employment had worsened because of global cost pressures.

Another rate increase could lift mortgage repayments as a share of household income to their highest level since the late 1980s, according to some estimates. Consumer confidence has weakened in recent months amid higher interest rates, sharply rising fuel costs and concerns about prolonged geopolitical instability. The RBA also said the Middle East conflict had intensified and oil prices were substantially above the level assumed in its August forecasts.

why it matters

The prospect of another increase may add pressure to Australian bonds and support the Australian dollar, while increasing repayment burdens and weighing on household demand.

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