SYDNEY — The Reserve Bank of Australia said Tuesday that it will discuss a pause in interest rate increases at its forthcoming policy meeting on April 4.
“Members agreed to reconsider the case for a pause at the following meeting, recognizing that pausing would allow additional time to reassess the outlook for the economy,” the RBA said in minutes of its March 7 board meeting.
The minutes also showed the RBA board acknowledged that monetary policy was now restrictive and that the “economic outlook was uncertain.”
“The considerations meant it would be appropriate at some point to hold the cash rate steady to assess more fully the effect of interest rate increases to date,” it added.
The minutes are consistent with recent comments by RBA Governor Philip Lowe that he has a “completely open mind” about the outcomes of coming policy meetings.
The RBA has already raised the official cash rate by 350 basis points since May last year to combat the biggest inflation outbreak in over 30 years.
The minutes showed the RBA board spent a lot of time talking about the lag in the impact of interest rate increases to date.
“They noted that these lags complicate the task of assessing the outlook for the economy,” the minutes said.
RBA Assistant Governor, Chris Kent, said in a speech Monday that only about half the impact of interest rate increases so far has been passed on, given a higher number of households than usual have low fixed-rate mortgages.
However, many of those ultra-low interest rate loan deals, negotiated when interest rates were at emergency lows during the pandemic, are now expiring, exposing a huge number of households to a sharp lift in mortgage repayments.
With respect to recent economic data, the RBA said that consumer spending, which is the biggest single driver of GDP growth, has slowed as real incomes fell in the face of high inflation, rising tax receipts and increased interest payments.
“The staff’s most recent forecasts assumed that consumption would remain subdued for some time,” the minutes said.
Retailers are also reporting little growth in sales, with many citing the “significant financial pressures that some households are experiencing.”
To determine the need for a pause in the tightening cycle, the RBA said it will be watching coming data on employment, inflation, retail trade, and business surveys.