More rate pain could be coming for Australian mortgage holders as the Reserve Bank talks tough on its fight against inflation.
In a grim update for mortgage holders, the Reserve Bank board warns of further pressures for inflation and they would be willing to lift rates further if necessary.
“The board will remain focused on its mandate to deliver price stability and full employment and will continue to do what it considered necessary to achieve that outcome, including increasing the cash rate target further if required,” the board said, according to the minutes of its September meeting.
Tuesday’s minutes followed the widely expected cash rate hike a fortnight ago, when the official cash rate was lifted by a further 25 basis points to 4.60 per cent, after the RBA monetary policy board meeting on September 28-29.
This was the fourth interest rate hike in their last six meetings which took the official cash rate to its highest level since 2011.
RBA governor Michele Bullock said shortly after the announcement that she understood the hike decision was “tough” for mortgage holders, but if inflation wasn’t lowered, interest rates would need to go even higher.
Inflation at the time of the decision was at 3.5 per cent, above the target range of 2-3 per cent.
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On the next day, new ABS data came out which showed headline inflation worsened to 4.0 per cent, largely due to the ending of the government’s temporary fuel excise tax cut.
Despite cost pressures, the Reserve Bank says the Australian economy needs a period of below trend growth, to get rid of the inflation problem.
“Members also noted that growth in consumption would need to be subdued for some time if inflation was to return to target, given strong growth in demand elsewhere in the economy and the starting position of excess demand,” the board said.
Tuesday’s RBA minutes of monetary policy reveal the Reserve Bank was still concerned about rising inflation through the Middle East war, pressures from the AI build out and limited ‘spare capacity’ in the Australian economy.
The board said since August some of these concerns had materialised.
“In light of these observations, members considered whether to raise the cash rate target by 25 basis points,” the minutes said.
“The strongest argument for raising the cash rate target at this meeting was that several of the upside risks identified in August had since materialised or were building.”