Australia’s central bank says it’s closer to normalizing rates, hinting at a range of 2.5-3.5%

Australia’s central bank says it’s closer to normalizing rates, hinting at a range of 2.5-3.5%

Written by Wayne Cole and Stella Keough

SYDNEY (Reuters) – Australia’s top central bank governor said on Friday that interest rates are closer to normal after a succession of massive increases, although he cautioned that rates remain low, hinting that a range of 2.5% to 3.5% It will be suitable depending on the economic cycles. .

Before a parliamentary economic committee, Reserve Bank of Australia (RBA) Governor Philip Lowe indicated that further rate hikes were needed to bring inflation back to the bank’s 2%-3% target range, but said it would be appropriate to slow the rate. increase at some point.

“At some point, it is clear that we are not going to increase prices by 50 basis points at every meeting, and we are approaching that point,” Lowe told a parliamentary economic committee.

Lowe said rates should average at least 2.5% over time and the cycle should be between 2.5% to 3.5% depending on how the economy performs.

“We’re closer to that now. We’re at 2.35%, so we’re getting close to the range you think is normal, but we’re probably still on the low side,” Lowe added.

In just five months, the Reserve Bank of Australia raised its key cash rate by 225 basis points to a seven-year high of 2.35% as it struggles to contain inflation rising to the highest level since 1990.

Markets are betting on further rallies to peak around 3.85%, although investors aren’t sure if the central bank will go another massive 50 basis points in October or cut back to a quarter point.

Hardline comments from other major central banks argue that the Reserve Bank of Australia will remain aggressive, with the US Federal Reserve widely expected to rise at least 75 basis points next week.

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Lowe said the upcoming board meeting will consider whether it is a 25 basis point increase or a 50 basis point increase, stressing that the size and timing of future rate hikes will be guided by incoming data and the board’s assessment of inflation and labor market expectations. .

“In our view, the inclusion of the warning ‘at some point’ indicates that a slowdown in the pace of tightening is not imminent,” said analysts at Goldman Sachs (NYSE:NYSE).

“We continue to expect the RBA to rise +50bp in October, before slowing the pace to +25bp in November and +25bp in December. We will be paying close attention to upcoming data on retail trade and job vacancies later in the day. the month.”

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