Key facts
- Three cash rate increases earlier this year are having their intended effects.
- Tight monetary conditions are weighing on consumer spending and slowing economic activity.
- Housing credit growth and new home lending have started to slow.
- Overall financial conditions are considered somewhat restrictive.
- The current cash rate is near the top of estimated neutral rate ranges.
- The RBA left interest rates unchanged at 4.35% this week.
- Core inflation was 3.6% in the June quarter, above the RBA's target band.
- Markets price in a 75% chance of a further rate increase by December.
Reserve Bank of Australia Assistant Governor Christopher Kent stated on Thursday that the three cash rate increases implemented earlier this year are achieving their intended effects, with tight monetary conditions impacting consumer spending and moderating economic activity.
Speaking at a Reuters NEXT Newsmaker event, Kent noted that housing credit growth and new home lending have begun to slow, indicating that tighter monetary policy will take time to fully influence economic activity and inflation. He also mentioned that overall financial conditions are considered somewhat restrictive, with the current cash rate near the top of estimated neutral rate ranges, though he acknowledged considerable uncertainty around these estimates.
The RBA maintained its interest rate at 4.35% this week, following previous hikes totaling 75 basis points since February aimed at curbing persistent inflation. Core inflation stood at an annual 3.6% in the June quarter, remaining above the RBA's target band of 2% to 3%. Governor Michel Bullock emphasized the bank's readiness to raise rates further if necessary to control inflation.
Market participants are pricing in approximately a 75% probability of another rate increase to 4.60% by December, with the assumption that this would likely conclude the tightening cycle.