Interest rate pause closer, says Reserve Bank chief

Interest rates graphic

Reserve Bank governor Philip Lowe has hinted that there may be relief in sight for rising interest rates and that the pain inflicted by 10 straight increases weighs “heavily on his heart”.

Speaking to the AFR Business Summit in Sydney yesterday, Dr Lowe said the board had discussed leaving the cash rate on hold at its next meeting.

The RBA meets once a month to set the cash rate, and at its meeting on Tuesday decided to increase the cash rate by 25 basis points to 3.6 per cent – an 11-year high.

Dr Lowe described this figure as “restrictive territory”, which in layman’s terms means a policy that will slow economic growth.

He said the RBA would not confirm any further rate rises in the near future, saying the “data on balance was a bit softer than we expected”.

Flexibility to respond

“Given these uncertainties, the board is monitoring the data very carefully month to month. It has the flexibility to respond as needed,” he said at the summit.

“At our board meeting [on Tuesday], we discussed … the difficulties that higher interest rates are causing for many households.

“We also discussed that, with monetary policy now in restrictive territory, we are closer to the point where it will be appropriate to pause interest rate increases to allow more time to assess the state of the economy.”

Dr Lowe said the board would consider all possibilities before the next meeting in April.

What happens next

“We’ve got a completely open mind about what happens in the next board meeting,” he said. “… We’ll have important data on unemployment, we’ll have another monthly inflation indicator, we’ll have more detail on retail spending and the business survey.”

“So they’re four really important pieces of data that we’ll look at.

“If, collectively, they suggest that the right thing is a pause, then we’ll do that, but if they suggest that we need to keep going, then we’ll do that.”

Dr Lowe said higher interest rates were being felt unevenly across the community, especially for people on variable-rate mortgages.

He said he received messages about how the rises were affecting families and their mental health, and would meet with representatives from Suicide Prevention and Lifeline.

“It weighs heavily on my heart (and) the hearts of the board members,” he said.

“But, at the same time, we know if we don’t get on top of inflation, higher interest rates, more unemployment, more pain.”

Below-average growth

In its Tuesday policy statement, the board said global inflation remained high and the global economy remained subdued with below-average growth expected this year and next. 

The board believed the Consumer Price Index (CPI) had peaked in Australia and was expected to moderate in coming months due to global developments and softer demand in Australia.

However, for some Australians rate rises aren’t all bad

According to MoneyMag, it can be a good opportunity to diversify your portfolio and as many older Australians have cash savings it could be a good time to shop around for higher interest rates. 

If you are looking to boost your account earnings, Canstar has done some of the hard work for you with its guide to savings account rates.

Are you affected by rising interest rates? Will you be shopping around for a better interest rate on your savings? We’d love to hear your opinion in the comments section below.

Also read: How the ‘big four’ get away with offering paltry term deposit rates

Written by Jan Fisher

Accomplished journalist, feature writer and sub-editor with impressive knowledge of the retirement landscape, including retirement income, issues that affect Australians planning and living in retirement, and answering YLC members' Age Pension and Centrelink questions. She has also developed a passion for travel and lifestyle writing and is fast becoming a supermarket savings 'guru'.

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