Australian Central Bank Discussed A Smaller Interest Rate Hike To Stave Off Falling House Prices

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The Reserve Bank of Australia plans to raise interest rates shortly but decided against a more significant increase this month due to concerns that decreasing housing prices would adversely affect consumer spending and because acting consistently is essential.

The minutes of the Nov. 1 policy meeting, released Tuesday, showed that the Reserve Bank of Australia’s (RBA) Board again considered hiking either by 25 basis points or 50 bps to return inflation to its 2-3% target range; however, the arguments for a smaller hike were more convincing and carried the day.

The RBA Board observed that rates had increased by 275 basis points from May to September, resulting in a nine-year high mortgage rate of 2.85%. They noted that much of this increase had yet to trickle down into actual mortgage payments made by Australians.

While people are still buying things, the financial difficulties have caused housing prices to drop, presumably leading to people spending less money overall, as seen in the past.

There are several other reasons why a smaller hike would be preferable, including wage growth has yet to rebound significantly, some global supply chain issues have eased but not vanished completely, commodity prices have fallen recently, and finally, inflationary pressures will be reduced shortly due to coordinated global interest rate increases.

“The Board believes that by behaving predictably, we will inspire trust in the monetary policy framework among those who invest money and the general public.” the minutes showed.

The Board did not rule out the return to more significant increases if inflation continues, and it is prepared to keep rates unchanged if needed.

“Interest rates are not predetermined,” the minutes showed.

The central bank is aware that a risk to inflation outlook exists in the possibility that price- and wage-setting behaviour will change, with wage growth likely increasing as unemployment rates hover near the lowest level in nearly 50 years.

On Wednesday, Australia will reveal how much wages have increased over the last quarter. Many experts are anticipating a 3% rise from this time last year, which is higher than the previous quarter’s Growth of 2.6%. The predicted increase is due to more jobs that pay minimum wage.

The markets predict that the RBA will likely raise rates by a quarter-point at their next policy meeting in December, but there is also around a 25% chance they might hold steady. Rates are predicted to peak at 3.7% sometime in July next year.

The Board plans to raise interest rates shortly to bring demand and supply into better equilibrium in Australia.

On Thursday, RBA Deputy Governor Michele Bullock said that although it might soon be time to “sit and wait” on raising interest rates, more evidence was needed to show that demand was slowing down as planned.

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