The Bank of Australia once again considered raising interest rates this month, but ultimately believed that the reason for holding off for the fourth consecutive meeting was "stronger", indicating a certain degree of continuity in the cautious policy stance of the Policy Committee under the leadership of new Governor Michele Bullock.
The minutes of the October 3rd meeting released on Tuesday showed that the Australian Central Bank has chosen to keep interest rates unchanged, fearing that the cumulative 4 percentage point rate hike since May 2022 may lead to an economic slowdown that exceeds expectations. Policy commissioners pointed out that policy transmission has a lag, while also pointing out that rising borrowing costs have begun to align demand with supply.
The reason for maintaining the cash interest rate target unchanged at this meeting is that we have observed a significant increase in interest rates in the short term, and the impact of tightening policies will not be fully reflected in economic activity and inflation data for a few months, "the Bank of Australia said. Furthermore, the labor market has reached a turning point
Although inflation rates are at least high, Australia's current benchmark policy interest rate of 4.1% is lower than many other developed countries. In the current tightening action, the Bank of Australia has raised interest rates by a cumulative 4 percentage points, which is also behind the 5.25 percentage points of the United States and New Zealand.
Given that the inflation rate is "far above" the Bank of Australia's target of 2-3%, a rate hike is still possible, but the Bank of Australia has hinted that this situation requires unexpected stronger than expected performance in economic data. Economists expect another interest rate hike later this year, and financial markets believe that the tightening cycle is almost over.
The employment market in Australia remains tense, with the unemployment rate hovering between 3.4% and 3.7% in the past year. Other economic data shows reasonable momentum, the business environment continues to be resilient, and job vacancies remain high. The Australian real estate market has also unexpectedly rebounded strongly this year.
The Bank of Australia stated that policymakers have noticed that although rising housing prices themselves may not be a reason for tightening policies, the associated increase in household wealth may provide stronger support for consumption than currently expected, especially if housing transactions rebound faster than expected. The bank stated that the rise in housing prices may also be a signal that the current policy stance is not as restrictive as assumed.