Central bank expects cost-of-living pressures to ease for borrowers
The Reserve Bank of Australia (RBA) believes the country is close to achieving its inflation target, with the worst of the cost-of-living pressures now behind most households.
Sarah Hunter, chief economist and assistant governor (economic) at the RBA, told an industry audience that recent monetary policy moves have brought inflation down from its 2022 peak and that further significant changes are unlikely in the near term.
Hunter explained that after inflation reached nearly 8% at the end of 2022, the RBA responded with a series of cash rate increases. “We’ve put through three cash rate cuts this year,” Hunter said. “We hope we’re pretty close to getting inflation back at target. It’s almost there.”
The RBA’s August forecasts, based on expectations of further modest rate reductions, indicate that both inflation and the labour market are likely to remain stable. Hunter noted that employment growth should keep pace with population increases, and that most indicators suggest the economy is balanced between risks of overheating and slowdown.
Hunter emphasised that the RBA’s decisions are based on forward-looking analysis, given the delayed impact of monetary policy. “When the board sets the interest rates today, no matter what they do, if they change it or if they hold it at its current level, they’re really having an impact on the economy over the next nine, 12, 18 months,” she said.
Hunter also highlighted the importance of qualitative data, including feedback from business and industry, to supplement official statistics, noting that the RBA conducts hundreds of interviews annually to understand conditions across sectors and regions.
For mortgage professionals, Hunter’s remarks on household finances are particularly relevant. She said that wage growth has now overtaken inflation, and that most mortgage holders are seeing improved conditions due to recent rate cuts and tax changes. However, she cautioned that not all households are affected equally, with some groups still facing challenges.
On housing supply, Hunter pointed to ongoing structural issues such as labour shortages, high construction costs, and planning delays, which are not easily addressed by interest rate changes. She also noted that while demand for credit is healthy, access to finance is not currently a widespread constraint for businesses or households.
Hunter stated the RBA will continue to monitor international developments and domestic economic balances. “We want low inflation, but we also need to make sure that we don’t go too far the other way and that the economy stays at full employment,” she said.
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