Home buyers could be in for an Easter surprise from the Reserve Bank, which is mulling a pause in its record run of interest rate rises to gauge if Australians are coping with the economic pain it is inflicting on the country.
Amid new forecasts suggesting the nation will slump into a per capita recession next year, minutes of the RBA’s March meeting – held before the recent turmoil in the American and European banking systems – showed board members weighing up conflicting signals about the economy’s strength.
Financial markets, which until recently had expected the bank to take the official cash rate to 4.1 per cent by the middle of this year, now believe it may have to start cutting by July.
The RBA has lifted the cash rate at its past 10 consecutive meetings, from 0.1 per cent in early May to an 11-year high of 3.6 per cent. On a $604,000 mortgage, the increases have lifted monthly repayments by more than $1100.
The minutes of this month’s meeting, held before America’s Silicon Valley Bank collapsed and Europe’s Credit Suisse was hit by client outflows and a stock rout, showed concern about the impact of such a rapid tightening of monetary policy.
“Members agreed to reconsider the case for a pause at the following meeting, recognising that pausing would allow additional time to reassess the outlook for the economy,” they said.
“At what point it will be appropriate to pause will be determined by the data and the board’s assessment of the outlook.”
The bank is forecasting inflation, which hit a 32-year high of 7.8 per cent in December, to gradually fall back to 2.5 per cent by the middle of 2025. That forecast is predicated on further increases in interest rates.
But the minutes also showed growing concern about how the economy would perform under the weight of monetary policy it described as being in “restrictive territory”.
One key source of uncertainty was household consumption, which accounts for 60 per cent of economic activity.
“The staff’s most recent forecasts assumed that consumption growth would remain subdued for some time, but it was possible that growth could slow by more than expected given very low levels of consumer confidence,” the minutes said.
The ANZ-Roy Morgan weekly measure of consumer sentiment, released on Tuesday, showed another 0.5 per cent fall over the past seven days to its lowest point since the nation endured its first COVID-related lockdown in April 2020.
ANZ senior economist Adelaide Timbrell said confidence had fallen for four consecutive weeks, with sentiment among those paying off a mortgage dropping by 4.3 per cent.
National Australia Bank’s economics team on Tuesday said it appeared the nation was passing a turning point, forecasting the economy to slow sharply over the coming year.
It is expecting the economy to expand by 1.5 per cent this year and then just 0.6 per cent in 2024. Once population growth is considered, growth at these rates would suggest a per capita recession.
NAB is also forecasting unemployment, which edged down to 3.5 per cent in February, to reach 4.7 per cent by the end of next year.
NAB chief economist Alan Oster said the nation’s economic clouds were darkening.
“The economy is now entering a more challenging phase, but it does so from a position of strength. Activity has recovered strongly, and the labour market is still very tight,” he said.
Commonwealth Bank’s head of Australian economics, Gareth Aird, said his bank’s internal data suggested retail sales were likely to have fallen in February while that month’s measure of inflation could also show signs that cost pressures were starting to abate.
“At this stage, it looks like a coin toss as to whether the RBA leaves the policy rate on hold in April,” he said.
( Information from politico.com was used in this report. Also if you have any problem of this article or if you need to remove this articles, please email here and we will delete this immediately. [email protected] )