February meeting and only two weeks ago, the RBA’s comprehensive quarterly statement on monetary
policy, which includes its growth and inflation forecasts. So much of what the RBA has already wanted to
deliver to the market has already been done.
Below is a summary of the RBA's testimony:
- Stevens reiterated that the current level of interest rates is no longer at emergency levels and that we are getting closer to a normal level of rates. He did, however, stress that it is appropriate for rates to be below normal at this point in time.
- He also noted that while house prices were rising at a solid pace, mortgage credit growth has slowed and banks were tightening lending standards.* He also again highlighted while large firms were accessing the equity market, small businesses found credit conditions were difficult but signs were things might now be easing.
- Accordingly, the RBA felt that there was scope to pause in February to assess how the economy was progressing. But with borrowing rates still “some distance” from normal and economic activity improving, the RBA would likely continue to move rates to more normal levels.
- Indeed, Stevens noted today that, “there is less scope for robust demand growth without inflation starting to rise again down the track. Monetary policy must therefore be careful not to overstay a very expansionary setting”.
- But with a nod to the domestic funding pressures here, Mr Stevens also noted that when setting the cash rate, the Board pays attention to not only the level of the cash rate but “interest rates borrowers actually pay, and that savers receive”.
- The overall message is that the RBA will take a very pragmatic and cautious approach to rate rises from here.
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