RBA hints at moratorium on rate hikes amid recession fears

Reserve Bank of Australia (RBA) is 10th With consecutive interest rate hikes, the official discount rate is at its highest level in 11 years.

But there are signs that the current cycle of monetary tightening may soon end as recession risks materialize.

March 7th, RBA board To keep inflation in check, we decided to raise the official discount rate by another 0.25% to 3.6%.

The board said inflation in the country may have peaked, but noted that service inflation remained high and housing rents were rising at the fastest pace in years.

Board members were also concerned about the risk of higher wage prices due to tighter labor markets and uncertainty about the timing and extent of a slowdown in household spending.

Under these circumstances, the RBA expected the rate cycle to continue.

But RBA Governor Philip Lowe has softened his rhetoric about future rate hikes compared to his hawkish tone at the Fed’s February meeting.

“The Board expects that further tightening of monetary policy will be necessary to ensure inflation returns to target and that this period of high inflation will be only temporary. He said.

Epoch Times photo
Reserve Bank of Australia Governor Philip Lowe delivers a speech in Sydney, Australia, March 19, 2020. (Brendon Thorne/Getty Images)

Matt Simpson, senior market analyst at City Index, said the wording change could signal the end of the monetary tightening cycle.

“Of course, a final 25 (basis points) rate hike is not certain at this point, but what is important to me is that the RBA removed a key hawkish sentence from its February statement,” he said. He said in a comment obtained by AAP.

While there is hope that an end to rising interest rates is in sight, mortgage holders will continue to bear the brunt of rising borrowing costs in the meantime.

According to a financial comparison site Toll citythe latest interest rate hike adds $77 (US$50.7) to the monthly repayments of a typical owner with a $500,000 mortgage over a 25-year term.

That number would be $116 for a $750,000 loan and $154 for a $1 million loan.

Concerns grow recession on horizon

While there is consensus on the need to bring inflation down, some economists have expressed concern that the RBA risks pushing the economy into recession.

Pradeep Philip, head of Deloitte Access Economics, said supply-side factors were largely behind Australia’s high inflation.

He urged the federal government to play a bigger role in fighting inflation with fiscal policy and said the RBA had only one tool at its disposal and that was to raise interest rates.

“In the meantime, the RBA should pause rate hikes or it will go too far and paralyze the economy,” Philip said.

Dr Gonzalo Castex, a senior lecturer in economics at the University of New South Wales, said Australia could slip into recession if the central bank continues to raise interest rates.

“Rising cash rates will make investments more expensive and impose financial hardships on businesses and households,” he told the Epoch Times.

“As a result, the economy could slow to the point where it could slip into a recession.”

Meanwhile, Peter Tulip, chief economist at the Independent Research Center, told the Epoch Times that although Australia is unlikely to slip into recession, the RBA could stop tightening and start cutting rates if the worst-case scenario occurs. He says he has a high temperament.

Warning signs from Australia’s biggest company

The latest rate hike comes as many top Australian companies reported slowing growth in the second half of 2022.

According to data from bloombergabout 41% of the 158 companies in the benchmark S&P/ASX 200 Index reported negative unexpected earnings in the first half of the 2022-2023 fiscal year, up from 28% the year before.

A negative earnings surprise means that the company has failed to meet the market’s earnings expectations, which can provoke negative sentiment among investors and drive down stock prices.

“Overall, this season has not been a great earnings season. Unfortunately, 2023 could be one of the best,” IG Markets analyst Hebe Cheng told Bloomberg.

The mining sector also appears to be facing a tough first half of the fiscal year due to falling commodity prices, high inflation and capital spending as major mining companies such as BHP Rio Tinto Group and Fortescue Metals cut their dividend payments. .

Epoch Times photo
The company’s logo adorns the side of BHP’s global headquarters in Melbourne, Australia, February 21, 2023. (William West/AFP via Getty Images)

In the food industry, rising costs such as labor costs, fuel costs, and packaging costs have had a major impact on enterprises, eating into profits.

Small businesses are also struggling with rising interest rates.

Australian Chamber of Commerce Chairman Andrew McKellar has called on the RBA to suspend further cash rate hikes.

The CEO explained that more small businesses are struggling to maintain loans on their capital assets and cover ongoing operating costs.

“Households and small businesses are already responding to the rapid rise and have yet to experience the full effect.” He said.

“With negative growth in household consumption and slowing economic activity recorded in the December quarter, we are starting to see signs that Australia has reached a tipping point in inflation.”

McKellar warned that if the RBA doesn’t give due consideration to current economic conditions, it could raise rates faster than the economy can handle.

Greens call for restraint on RBA

Meanwhile, the Australian Green Party said the 10th consecutive rate hike “clearly demonstrates that the central bank is out of control and needs to be restrained”.

Senator Nick McKim, a spokesperson for Greens Economic Justice, said: “It’s a form of institutional insanity when the RBA responds to a problem it doesn’t understand with an inadequate solution.

“The RBA itself has found that inflation is driven primarily by supply-side shocks and corporate profit seeking, and acknowledges that monetary policy can do little to offset supply shocks.

“It also said the monthly CPI indicator suggests that inflation has peaked.”

“Nevertheless, the RBA continues to raise rates relentlessly.”

MvKim urges government to provide additional support to renters and mortgage holders devastated “by RBA’s arbitrary interest rate hikes” through corporate super-profits and higher taxes on the wealthy .

“Governments should not just sit back and tax corporate super profits, and the super wealthy should join us in freezing rent, increasing income support, and putting dental and mental health in Medicare. There is,’ he said.

“The Green Party urges the Treasurer to take immediate action to address the economic crisis caused by the RBA’s misguided policies and start putting the interests of everyday Australians first.”