By Wayne Cole
SYDNEY, April 5 (Reuters) – Australia’s top central banker said on Wednesday a pause in interest rate rises did not imply that increases were over and a that further tightening may well be needed to bring inflation to heel.
In a speech on the policy outlook, Reserve Bank of Australia (RBA) Governor Philip Lowe said rates had been held steady this month to allow more time to asses the impact of past hikes, but the Board would assess policy again in May with updated forecasts for the economy and inflation.
The central bank on Tuesday kept interest rates at 3.6%, breaking a string of 10 straight increases.
“The decision to hold rates steady this month does not imply that interest rate increases are over,” Lowe said.
Headline consumer price inflation hit a three-decade high of 7.8% in the December quarter, far above the RBA’s target band of 2-3%, though it has shown some sign of easing since.
Financial markets imply a modest chance of a hike in May but suspect rates have peaked and the next move will be down, albeit not until late this year or early 2024. 0#RBAWATCH
“The Board is conscious that monetary policy operates with a lag and that the full effect of the increases to date is yet to be felt,” Lowe noted. “It is also conscious that there are significant economic uncertainties at the moment.”
Lowe said those uncertainties included the resilience of household demand in the face of rising mortgage rates, the evolution of wage and price setting behaviour and stress in the global banking system.
“It is increasingly clear that the higher interest rates are having an impact on aggregate household spending,” said Lowe, adding that the bank’s forecast was for only slight growth in the March quarter.
Lowe said high inflation had not been driven by excessive wage growth, nor by price gouging by businesses.
“It is important that wage increases remain broadly consistent with the inflation target and that a widening of profit margins does not become a source of ongoing upward pressure on prices,” he added.
(Reporting by Wayne Cole; Editing by Himani Sarkar and Sam Holmes)
((Wayne.Cole@thomsonreuters.com; 612 9171 7144; Reuters Messaging: wayne.cole.thomsonreuters.com@reuters.net))
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