Australian central bank to hold rates 'higher for longer', former official says
THE Reserve Bank of Australia (RBA) is likely near its peak interest rate and will hold at that level for an extended period of time – probably through 2024, a former official at the central bank said on Friday (Sep 1).
This also means that once the Australian central bank begins dialling back from its current restrictive setting, it will gradually lower rates to a more neutral level, Jonathan Kearns, RBA’s former head of domestic markets, told the Reuters Global Markets Forum (GMF).
The RBA left its cash rate unchanged at 4.1 per cent for a second straight month at its last meeting in August, stating the 400 basis points of cumulative rate rises over the past 16 months were working to cool demand as inflation showed signs of easing.
“That’s a fair chance that the RBA is finished tightening,” Kearns said, adding that the gradual easing of economic activity being seen in Australia was panning out as the RBA had hoped.
Kearns, currently chief economist at Challenger pension funds, believes the RBA’s approach to not go to an aggressively high peak will allow it to hold the cash rate “higher for longer”, which in turn will help preserve Australia’s employment gains and avoid a pick-up in the unemployment rate.
Australia’s wage growth has been “relatively contained”, said Kearns, who was earlier also principal economist at the Bank of International Settlements, adding that would help the case for a “softer landing”.
The RBA will not feel comfortable enough to start cutting rates until it is confident that inflation is headed back below within the 2-3 per cent range, he said, which will not happen unless wage growth drops to RBA’s forecast of 3.6 per cent by end-2025 and there is a meaningful pick-up in productivity. REUTERS
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