Australia’s central bank says closer to pausing on rate hikes

SYDNEY  -The head of Australia’s central bank on Wednesday said it was closer to pausing its aggressive cycle of rate increases as policy was now in restrictive territory, and suggested a halt could come as soon as April.

Reserve Bank of Australia (RBA) Governor Philip Lowe did reiterate that further tightening was still likely to tame inflation, having lifted rates to an 11-year high of 3.6 percent at a policy meeting on Tuesday.

However, Lowe noted the Board had discussed the long lags in monetary policy, the effects of the 10 hikes already delivered and the impact of higher borrowing costs on households.

“We also discussed that, with monetary policy now in restrictive territory, we are closer to the point where it will be appropriate to pause interest rate increases to allow more time to assess the state of the economy,” Lowe said in a speech on recent data and inflation.

“At what point it will be appropriate to pause will be determined by the data and our assessment of the outlook.”

Answering questions after the speech, Lowe said the Board was ready to react month to month and if coming economic data supported a pause, it could choose to do so at the next policy meeting on April 4.

The dovish message saw markets scale back the likely peak for rates to 4.1 percent, compared to 4.35 percent a week ago.

It was also in stark contrast to the head of the U.S. Federal Reserve who warned on Tuesday that rates there might have to rise faster and higher than expected to get inflation under control.

That divergence had already seen the Australian dollar slide 2.2% overnight to a four-month low of $0.6580 as its U.S. counterpart surged across the board.

Asked about the divergence, Lowe said the outlook for inflation and wages in Australia was not as troubling as in the United States, and markets should understand that.

Lowe said recently released data on Australian monthly consumer prices supported arguments that inflation had peaked, while wage figures had been softer than expected.

“These data suggest that the risk of a prices-wages spiral remains low,” said Lowe.

The figures also showed household consumption had slowed markedly in the December quarter, bringing demand back into better balance with supply.

“The bounce-back in spending following the pandemic has now largely run its course,” said Lowe.

“More fundamentally, the combination of cost-of-living pressures, higher interest rates and the decline in housing values is weighing on consumption.”

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