OPINION: An important change in language by the Reserve Bank of Australia points to light at the end of the interest rate tightening tunnel.
Sometimes what is left unsaid is more important than what is said by central bankers, as shown by Reserve Bank of Australia governor Philip Lowe’s latest statement after lifting rates by 0.5 of a percentage point to 2.35 per cent on Tuesday.
Lowe says the RBA is paying close attention to the conflicting signals. While higher inflation and higher interest rates are putting pressure on household budgets, people are finding jobs, gaining more hours of work, and receiving higher wages. She says the RBA’s comment that, “the full effects of higher interest rates [are] yet to be felt in mortgage payments”, could well open the door to a more modest pace of tightening from here.
Marcel Thieliant, senior economist at Capital Economics, says 2.35 per cent is broadly in line with the bank’s estimate of the neutral rate and that is “consistent with our view that the bank will slow the pace of tightening to smaller [25 basis point rises] from its October meeting”.
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