Another issue of growing importance is the sharp ramp-up in the proportion of household income being used to cover higher mortgage repayments.
The minutes show the bank expects the share of income needed to keep on top of mortgages will reach levels not seen since 2008. There is likely to be a sudden increase as people with fixed rate loans,struck in 2020 and 2021,roll them over to much more expensive mortgages in the coming 12 months.
“Furthermore,real incomes had been declining and housing prices and sales volumes had also fallen. Together,these factors were expected to weigh on consumption in the year ahead,while global demand was also likely to weaken,” the minutes noted.
In backing a quarter percentage point rate rise,the minutes noted impact of past rate hikes may take longer to slow the economy and bring down inflation due partly to large levels of savings built-up during Covid.
Another reason for sticking with a quarter percentage point lift was to avoid confusing Australians about the bank’s policy intentions.
“Members also noted the importance of acting consistently,and that shifting to either larger increases or pausing at this point with no clear impetus from the incoming data would create uncertainty about the board’s reaction function,” the minutes showed.
The meeting took place ahead of the federal government’s contentious intervention in the gas market and ahead of tentative signs from overseas that inflation pressures there may be easing.
Westpac senior economist Justin Smirk on Tuesday said a combination of factors,including the federal cap on gas prices,meant it now expected inflation by the end of next year to be lower than forecast.
Smirk said Westpac believes inflation is now likely to be down to 3.9 per cent by the December quarter near year. It had expected inflation to be at 4.1 per cent while the Reserve Bank had forecast it to be around 4.7 per cent.
“As we head into 2023 the question is shifting from worrying about how much further the inflationary pulse may have left to run to questioning how fast will that pulse dis-inflate,” he said.
The Commonwealth Bank’s head of Australian economics,Gareth Aird,said he expects one more increase in official interest rates early next before the RBA has to reverse course by the end of 2023 with half a percentage worth of rate reductions.
“We believe the tightening cycle is close to its completion,” he said.
“The case to keep the cash rate unchanged for a period of time to assess the state of the economy and the inflation outlook is strong.”
The NAB also believes the RBA will be considering interest rate cuts,saying it could occur in the first three months of 2024.
The RBA board will not meet again until early February. Financial markets put the chance of a further interest rate rise at 50-50.
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