Mortgage-holders may expect interest rates to be
put on hold in the short term.
AUSTRALIAN interest rates are "well placed for the present" after the Reserve Bank of Australia tightened policy earlier this month to offset inflationary pressures from a resources boom, according to central bank minutes published Tuesday.
In minutes of its May 4 policy meeting, the RBA reiterated that if lenders responded to the rise in interest rates as expected, "interest rates faced by most borrowers would then be at around their average levels over the past decade".
It also said there were early signs that rapid hikes since October 2009 were starting to slow the economy "with retail sales subdued and housing loan approvals falling noticeably".
Economists said the remarks signalled the RBA would keep interest rates on hold over coming months.
Said Su-Lin Ong, senior economist at RBC Capital Markets: "The minutes clearly hint at a pause in this tightening cycle."
Still, the RBA said it expected that the stimulatory effects of the commodity-price upswing "would be building over the year ahead".
"Members were conscious of the need for this not to result in a material worsening in the medium-term outlook for inflation," it said.
The evolving sovereign-debt crisis in Greece formed a backdrop to the meeting and was discussed at length, forming an argument to hold rates steady in May, the minutes of the policy-setting meeting showed.
The uncertainty in global financial markets formed the case "that could be made for a pause in the process of normalising interest rates", the minutes said. "There was a risk that the situation could worsen further, damaging the global economic recovery."
The Australian dollar weakened after the release of the minutes, before recovering most of the slide. At 0230 GMT, the currency was quoted at $US0.8728, almost unchanged from levels earlier in the session.
If the RBA does move to put rates on hold, it's time on the sidelines won't be long, and following that it may hike rates at a slower pace, said Scott Haslem, chief economist at UBS.
"Our impression remains the RBA believes it can move more gradually, now that monetary policy is no longer in a stimulatory position," he said.
The RBA has raised rates six times since October 2009, taking the cash-rate target to 4.5 per cent at the start of May, from 3 per cent last year.
Recent global-market jitters linked to concerns about the sovereign-debt crisis in Europe have seen the local market scale down the potential for further RBA hikes in the near term.
Financial market pricing today suggested little if any chance of another hike in June, with the RBA possibly on hold through to the fourth quarter of 2010.
The RBA raised its inflation forecasts early this month in its quarterly Statement on Monetary Policy.
The RBA expects both core and headline inflation to drift toward the top end of its 2-3 per cent target band in the near term and to remain there for a longer time.
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