Governor Philip Lowe addressed the Australian Financial Review’s Business Summit this morning and forecast some welcome news for mortgage holders with a pause in rate rises on the horizon.
“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,” Lowe said.
“At what point it will be appropriate to pause will be determined by the data and our assessment of the outlook.”
It comes as the central bank raised the cash rate by 25 basis points yesterday to 3.60 per cent – the highest rate since 2012.
Lowe said the board remains certain further interest rate rises will be necessary in the future as inflation remains out of target but the bank is waiting to see the outcome in the lag of laying down the increases.
“Inflation is still too high and while it looks to be on a declining path it is likely to remain higher than target for a few years,” he said.
“If we don’t get inflation down fairly soon, the end result will be even higher interest rates and more unemployment.
Lowe reiterated the fact the bank is walking a difficult path between doing enough with changing rates to control inflation without leading Australia down the “narrow path” of a recession.
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“This is one reason why the Reserve Bank is determined to ensure that this current period of high inflation is temporary,” he said.
“We will do what is necessary to make sure that high inflation does not become ingrained.”
Lowe acknowledged the tool the bank primarily has to control inflation is changing interest rates.
However, bringing inflation back to target is the paramount concern for the bank.
”The Reserve Bank Board is navigating a narrow path,” he said.
“We are seeking to bring inflation down in a timely way while keeping the economy on an even keel.
“If we can successfully navigate that narrow path, inflation will return to target in a reasonable time.”
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