Minutes from the Reserve Bank’s December meeting have revealed more interest rate raises may be required, sparking accusations from the Coalition that the government is not doing enough “heavy lifting” to help fight inflation.
The minutes, published on Tuesday, said that while the RBA would keep rates on hold at 4.35 per cent this month, decision makers on the board feel they may need to take further action in the coming months.
“Members agreed that whether further tightening of monetary policy is required to ensure that inflation returns to target in a reasonable timeframe will depend on how the incoming data alter the economic outlook and the evolving assessment of risks,” they read.
The revelation will be unwelcome news to families already struggling with immense cost of living pressures and could surprise markets, which have generally formed the view the RBA had finished its tightening cycle.
According to current pricing, markets believe there is a one-in-four chance the bank will cut rates in March next year, while the odds of a cut in June are priced at all but 100 per cent.
However, as some economists had previously highlighted, the RBA has raised the possibility for at least one more rate rise in its forecast for the coming year and continued resilience in the economy could also force the bank to hold rates higher for longer.
The risk of further hikes has sparked renewed criticism of the government for not taking stronger measures to combat inflation, with shadow finance minister Jane Hume telling Sky News Australia on Tuesday they had failed to do the “heavy lifting” needed to take pressure off the RBA.
“The RBA have already said that they have a very low tolerance for sustained inflation and inflation staying above that two to three per cent band any later than the end of 2025,” she said.
“Their frustration is compounded by the fact that they are doing all the work to get inflation down.
“You’ve got two tools in the shed, not just monetary policy, fiscal policy as well and the government isn’t doing it’s fair share of the heavy lifting.
“That’s why the RBA has to keep doing more and more to try and tame inflation.”
While the bank noted inflation had “continued to moderate” over the past months, the minutes revealed it had “little new information” on services inflation outside of rental prices.
Governor Michele Bullock has previously expressed concern such inflation was “fairly persistent”.
Tuesday’s minutes said the RBA expects rental prices to remain a source of pressure “for some time.”
Despite this, Assistant Treasurer and Financial Services Minister Stephen Jones defended the government’s response, arguing “Budget repair” and spending restraint were playing an important role in helping manage the economy.
“I take some heart from the readthrough of the Reserve Bank minutes where they say the rate rises that the independent Reserve Bank has already put in place together with what’s going on in Australia and around the world is slowing consumption ad putting downward pressure on inflation,” he said.
(SKY NEWS)
