Australia's central bank kept its key interest rate unchanged while retaining a tightening bias on Tuesday as new Governor Michele Bullock gauges the impact of 4 percentage points of hikes.
The Reserve Bank held its cash rate at 4.1% for a fourth straight meeting in Sydney, as anticipated by both economists and money markets. The string of pauses suggests a surprise shift in economic data will be needed to prompt any action.
The Australian dollar held declines for the day, down 0.4% to 63.38 US cents at 2:31 pm in Sydney. The rate-sensitive three-year government bond yield pared its increase to be 4 basis points higher at 4.12%.
The RBA has moved at a slower pace than most of its major counterparts to take account of the rapid pass-through of tightening to Australian borrowers, who are mainly on floating-rate mortgages.
The RBA remains concerned that sticky services prices — and a spike in oil — could untether inflation expectations. Figures last week showed an acceleration in monthly CPI with Australia's job market, like many in the developed world, still showing surprising resilience.
The long and variable lags associated with monetary policy are a key reason why the RBA is moving cautiously. The ongoing expiry of a batch of home loans fixed at record low rates during the pandemic remains a cloud on the horizon.
Over 90% of new Australian home loans are on floating rates, meaning the effective mortgage rate has climbed to 5.6% from 2.75% in Australia — whereas in the US borrowing costs rose to 3.6% from 3.3% — during the current tightening cycle, Westpac Banking Corp. calculations show.
Underscoring the need for caution, Australian households remain among the most highly leveraged in the developed world, with a debt-to-income ratio of almost 187%.
There are also concerns offshore as China, Australia's biggest trading partner and a key driver of the global economy, is engulfed in a housing crisis and struggling to meet its growth target.
Even so, economists expect the RBA will need to increase borrowing costs at least one more time to 4.35%, pointing to the nation's ultra-low unemployment of 3.7% and still-elevated inflation. CPI is only forecast to return to the RBA's 2-3% target in late 2025 — and any sign that it may be further delayed will prompt a policy response.
Source : Bloomberg
