The Reserve Bank is supposed to have a handle on how the economy will perform over the next two years. Its minutes show it doesn’t.
, reveal that the bank’s core assumptions are being challenged by events playing out across the nation’s shopping malls.
Further clouding the story, the bank had believed people were socking away extra cash in their mortgage offset accounts. If true, that would suggest households were dealing with current interest rate settings relatively comfortably.For the first time, the minutes used the term “financially squeezed” to describe the nation’s households.
The case for an interest rate rise in effect rested on an argument that the economy was travelling too well to bring inflation down to the bank’s 2-3 per cent target by mid-2026. A little bit of spare capacity – economist jargon for slowing the economy – might be necessary to get inflation down faster.
The Reserve Bank’s mandate is to both bring down inflation and keep unemployment as low as possible. According to the bank, the risks to the jobs market are growing.“Members observed that the fall in vacancy rates, for example, could be taken as an indication that labour market conditions were already weaker than implied by trends in employment,” the minutes noted.
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