Australia’s central bank left interest rates on hold yesterday, pausing a series of sharp hikes that have drawn criticism from homeowners.
The Reserve Bank of Australia (RBA) held borrowing costs at 3.6 percent, ending a run of 10 successive rate hikes aimed at taming inflation.
RBA Governor Philip Lowe said the pause would allow the bank to take stock of previous increases and a global outlook that remains “subdued.”
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“The recent banking system problems in the United States and Switzerland have resulted in volatility in financial markets and a reassessment of the outlook for global interest rates,” Lowe said.
The news gave a boost to stocks, with the S&P/ASX 200 rising 0.2 percent in the afternoon, while the Australian dollar fell as much as 0.4 percent against the US dollar.
The RBA has come under fire from homeowners who have seen average monthly mortgage repayments skyrocket.
Australians are forking out an extra A$250 (US$169) every week to meet the repayments on an average mortgage of about A$600,000.
Household inflation in Australia sits at about 6.8 percent — down from 7.8 percent in December last year, but still stubbornly above the central bank’s target of between 2 and 3 percent.
Lowe said “some further tightening of monetary policy may well be needed to ensure that inflation returns to target.”
Australia, like most countries fighting inflation, faces a delicate balancing act to bring prices down without stifling economic growth and sparking a recession.
“The path to achieving a soft landing remains a narrow one,” Lowe said.
Separately, New Zealand businesses remained downbeat in the first quarter of this year as high interest rates and slowing demand push the nation toward recession.
A net 66 percent of businesses expect the economy to deteriorate in the next 12 months, the New Zealand Institute of Economic Research said in its quarterly survey of business opinion.
That is little changed from 70 percent in the fourth quarter of last year, which was the lowest since the early 1970s.
Economic growth is slowing after the Reserve Bank of New Zealand’s (RBNZ) aggressive monetary policy tightening, which is aimed at curbing demand in order to reduce inflation.
The central bank is tipped to raise the official cash rate by a further 25 basis points to 5 percent today, but economists say borrowing costs might be nearing a peak.
“There are signs the dampening in demand the Reserve Bank has been trying to engineer is starting to gain traction,” institute principal economist Christina Leung told a briefing. “There are encouraging signs for the RBNZ. The key question is whether it believes it has done enough.”
Leung expects the central bank will raise the official cash rate tomorrow, but then take a wait-and-see approach to assess the impact of what would be 475 points of tightening since late 2021.
Additional reporting by Bloomberg
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