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Australia’s central bank says policy is restrictive, causing households pain

2024.06.25 19:56

SYDNEY (Reuters) – Australia’s central bank said on Wednesday that monetary policy was restrictive with the current cash rate causing financial pain for many households, but it could not rule out further tightening if necessary to tame inflation.

In a speech on the banking industry in Melbourne, Reserve Bank of Australia (RBA) Assistant Governor Christopher Kent said interest rates of 4.35% were contributing to slower growth of demand and lower inflation.

“We know that many are feeling a painful squeeze on their finances because of higher interest rates,” said Kent, noting mortgage payment has already increased to a record 10% of household disposable income.

Kent said rates were clearly above all estimates of the neutral rate – that which neither stimulates nor retards economic growth.

The RBA has raised interest rates by a whopping 425 basis points since May 2022, but has held steady for five straight meetings with inflation running at 3.6%, well above its target band of 2-3%.

RBA Governor Michele Bullock earlier this month told reporters that the restrictive policy is one reason that the policymakers were reluctant to raise rates further at its June policy meeting.

Markets see only a modest chance of a rate cut until April next year, and just 43 basis points of easing has been priced in by the end of 2025.

Kent reiterated the central bank was in no rush to ease.

© Reuters. FILE PHOTO: A worker pushing a trolley walks with pedestrians past the Reserve Bank of Australia (RBA) head office in central Sydney, Australia, March 7, 2017. Picture taken March 7, 2017.   REUTERS/David Gray/File Photo

“While recent economic data have been mixed, they have reinforced the need to remain vigilant to upside risks to inflation,” he reiterated.

“Hence, with regards to the path of interest rates, the Reserve Bank Board is not ruling anything in or out.”



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