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The welcome relief of July's interest rates pause may be short-lived, even though the Reserve Bank of Australia (RBA) admitted the current cash rate is clearly throttling household finances.
Minutes from the RBA this month's cash rate meeting reveal in unusually frank terms for the central bank that board members have acknowledged just how impactful the string of rates increases have been.
"Monetary policy had been tightened considerably and rapidly over the prior year and the stance of monetary policy was clearly restrictive at the prevailing cash rate," the minutes read.
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The meeting also heard that the cost of mortgage repayments has reached historical highs – and is set to get even worse in the coming months.
"Scheduled mortgage payments had increased to around a historical peak of 9.4 per cent of household disposable income in May," the minutes state.
"Scheduled payments would continue to increase (even if there were no further increases in the cash rate) as borrowers with fixed-rate loans rolled off onto higher variable rates and earlier increases in lending rates flowed through."
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Even so, the board was already weighing up the need for another increase when it kept rates on hold at 4.1 per cent earlier this month.
"Members agreed that some further tightening of monetary policy may be required to bring inflation back to target within a reasonable timeframe, but that this depended on how the economy and inflation evolve," the minutes read.
"At the August meeting, the Board would have the benefit of additional data on inflation, the global economy, the labour market and household spending, as well as an updated set of staff forecasts and a revised assessment of the risks.
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"Members reaffirmed their determination to return inflation to target within a reasonable timeframe and their willingness to do what is necessary to achieve that outcome."
In their July meeting, the board noted the market is bracing for another two rates rises by the end of the year.
"The market was pricing in two 25 basis point increases in the cash rate over the remainder of 2023, an expectation shared by around half of market economists," the minutes say.
In discussing the persistently expensive cost of food in Australia, the RBA is expecting issues caused by high rainfall and flooding to be compounded by incoming hot and dry conditions.
"Food inflation remained high; while the 2022 flood-related effects on fresh food had unwound, the reversion in global food prices was yet to be seen in domestic prices," the minutes say.
"Furthermore, the increased likelihood of an El Niño event in 2023/24 and an associated downgrade for agricultural production could put upward pressure on some food prices over the coming year."
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