RBA Raises Rates Another 50bps to 1.85% as Expected

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    RBA July Minutes

    Members agreed that further steps would need to be taken to normalise monetary conditions in Australia over the months ahead.
    Members noted that gauging the level of the neutral rate is challenging in practice because it cannot be directly observed
    Members considered the possibility of raising interest rates by 25 basis points or 50 basis points.
    Level of interest rates was still very low for an economy with a tight labour market and facing a period of higher inflation.
    Members discussed three points, first that current cash rate is well below the lower range of estimates for the nominal neutral rate
    Members viewed it as important that inflation expectations remained well anchored and that the period of higher inflation be temporary.
    This suggests that further increases in interest rate will be needed to return inflation to the target over time
    Longer-term measures of inflation expectations were well anchored.
    Neutral rate framework indicates that if inflation expectations rise, level of nominal interest rates required to return inflation to the target will be higher than otherwise
    Inflation is forecast to peak later in 2022 and then decline back towards the 2 to 3 per cent range in 2023.
    Higher interest rates will also help establish a more sustainable balance between the demand for and the supply of goods and


    Reserve Bank of Australia Deputy Governor Michele Bullock speaking on:

    How are Households Placed for Interest Rate Increases?
    via Reuters

    further rate increases will be needed in the months ahead
    Financial stability risks from households “are a little elevated” but unlikely to be substantial
    Risks will be important in deciding size and timing of future interest rate rises
    Risks will be influenced by the future path of employment growth
    Current strong growth in employment means people will have jobs to service their mortgages
    Aggregate household balance sheets are in very good shape
    Households have saved a large amount of money since the onset of the pandemic
    Borrowers with the most debt also tend to have the highest liquidity buffers
    Household sector as whole has accumulated sizeable equity via higher housing prices
    House prices would have to fall a fair way for negative equity to become a systemic concern
    Much of the debt is held by high-income households that have the ability to service their debt


    The Reserve Bank of Australia raised interest rates for the fourth consecutive time on Tuesday to 1.85%. The move was as expected by the RBA board. Th
    [See the full post at: RBA Raises Rates Another 50bps to 1.85% as Expected]

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