rewrite this title Reserve Bank of Australia issues dark warning of a Melbourne Cup interest rate hike

The Reserve Bank has strongly hinted it may raise interest rates again on Melbourne Cup day as it has a “low tolerance” for inflation remaining high for too long.

The grim warning was contained in the minutes of the RBA’s October meeting – the first that Michele Bullock chaired as governor.

The spot rate this month held at an 11-year high of 4.1%, but the minutes suggest rates could rise again for the 13th time since May 2022 as inflation was still too high.

The minutes stated: “In making their decision, members noted that further tightening of policy may be necessary if inflation proves more persistent than expected.

“The board has low tolerance for inflation returning to target more slowly than currently expected.

“Whether or not a further increase in interest rates is necessary will therefore depend on the available data and how this changes the economic outlook and the evolution of risk assessment.”

The hawkish language used in the minutes was more direct than the words used by Ms Bullock’s predecessor, Philip Lowe, and echoes her June speech to business leaders in Newcastle, in which she said: ” It might be a lot easier to just raise interest rates.”

Inflation in August rose to 5.2 percent, up from 4.9 percent in July, marking the first monthly deterioration in the consumer price index since April, despite the Reserve Bank’s rate hike in the most brutal pace since 1989.

This has put inflation even further above the RBA’s 2-3% target, and the Reserve Bank does not expect CPI to return to this zone until mid-2025.

ANZ head of Australian economics Adam Boyton said a high inflation rate for the September quarter on October 25 could trigger a rate hike in November.

“The November meeting feels pretty ‘live,’” he said.

“Our view is that a rate hike in November would require an uncomfortably high CPI, possibly combined with signs of strength in the labor market.”

The Reserve Bank’s October 3 meeting took place four days before the Hamas terrorist attack on Israel, which raised fears of rising crude oil and gasoline prices.

Gasoline prices in the year to August jumped 14 percent, with E10 unleaded gasoline now selling for more than $2 a liter.

But AMP chief economist Shane Oliver said rising gas prices would simply lead to reduced consumer spending, giving sellers less opportunity to pass on the price rise, as they did so in early 2022 when Russia invaded Ukraine.

“A further rise in oil and gasoline prices is more likely to be a ‘tax on spending’ than a further surge in inflation and therefore to have a deflationary effect, which will make it very difficult to “pass-on of rising fuel and transportation costs to consumers beyond the period. direct impact of the increase in the price of gasoline,” he said.

“This means that it will mainly increase the risk of recession.”

Credit checking company Million said that even without a rate increase, consumers would struggle to pay off their credit cards, with stress levels increasing by 11 per cent in the last financial year.

RBA rate hikes have so far led to an increase in defaults on credit cards and home mortgages, where a borrower is 30 days or more behind on their repayments and bills.

Barrett Hasseldine, head of modeling at Million, said credit stress levels were likely to worsen.

“There is no real evidence yet that a turnaround in credit stress is in sight,” he said.

“In fact, the current trend suggests that credit stress continues to increase, with no clear improvement observed yet.”