© Reuters. Pedestrians walk past the main entrance to the Reserve Bank of Australia (RBA) headquarters in central Sydney, Australia, October 3, 2016. Photo taken October 3, 2016. REUTERS / David Gray / File Photo
SYDNEY (Reuters) – Australia’s central bank is preparing to raise rates again as it battles to rein in red-hot inflation, but sees a case for slowing the pace of increases as rates approach more normal.
Minutes of the Reserve Bank of Australia’s (RBA) September Board of Directors meeting on Tuesday reiterated that policy is not on a set path and will be balanced to try to keep the economy afloat. even.
“All equal, members have seen cases where rate hikes have slowed and become stronger as cash rates have increased,” the minutes showed.
The central bank raised the cash rate by 50 basis points to 2.35% at its September 6 meeting, the fifth increase in months for a total increase of 225 basis points.
Markets are betting on another half-point rally in October, partly to keep up with the US Federal Reserve, which is tipped to raise interest rates by 75 basis points this week.
RBA Governor Philip Lowe flagged an opportunity for a slowdown in growth at some point, but also stressed the importance in a very tight labor market of keeping inflation expectations in check.
Board members said that while wages rose as unemployment hit a 48-year low, the pace of wage growth remained in line with the bank’s 2%-3% inflation target.
“Members noted that the pace of core wage growth to date has not reached a level inconsistent with achieving the inflation target on a sustained basis.”
The emphasis on inflation and a hawkish outlook from the Fed prompted Westpac chief economist Bill Evans to revise his call for rates and he now sees a half-point move in October instead of 25. base point.
He also looks for quarterly gains in November, December and February, taking rates to as high as 3.6%.
“Clear evidence of a slowdown in inflation is not expected until late February, allowing the RBA to continue into March based on evidence that growth is slowing and inflation is slowing,” Evans said. Growth and rates have also peaked in the United States.”
Board members discussed whether to raise rates to 25 bps or 50 bps in September, noting that rates were approaching normal, the minutes showed.
“They acknowledge that monetary policy works lagged and interest rates have been ramping up pretty quickly and are getting closer to normal settings.”
Board members also discussed the potential cost of higher rates to the central bank, the minutes showed.
“Final costs will only be known after the final bond purchases mature in 2033. Members noted that it is important to assess this potential cost in light of the broader benefit to the economy. economic has come from the BPP (bond-buying program) as part of a package of monetary policy measures.”
The RBA offers a review of the bank’s bond-buying program on Wednesday.