(Adds market reaction, timing of pause)
By Wayne Cole
SYDNEY, March 8 (Reuters) - The head of Australia's
central bank on Wednesday said it was closer to pausing its
aggressive cycle of rate increases as policy was now in
restrictive territory, and suggested a halt could come as soon
as April.
Reserve Bank of Australia (RBA) Governor Philip Lowe did
reiterate that further tightening was still likely to tame
inflation, having lifted rates to an 11-year high of 3.60% at a
policy meeting on Tuesday.
However, Lowe noted the Board had discussed the long
lags in monetary policy, the effects of the 10 hikes already
delivered and the impact of higher borrowing costs on
households.
"We also discussed that, with monetary policy now in
restrictive territory, we are closer to the point where it will
be appropriate to pause interest rate increases to allow more
time to assess the state of the economy," Lowe said in a speech
on recent data and inflation.
"At what point it will be appropriate to pause will be
determined by the data and our assessment of the outlook."
Answering questions after the speech, Lowe said the Board
was ready to react month to month and if coming economic data
supported a pause, it could choose to do so at the next policy
meeting on April 4.
The dovish message saw markets scale back the likely peak
for rates to 4.10%, compared to 4.35% a week ago. It was also in stark contrast to the head of the U.S.
Federal Reserve who warned on Tuesday that rates there might
have to rise faster and higher than expected to get inflation
under control.
That divergence had already seen the Australian dollar slide
2.2% overnight to a four-month low of $0.6580 as its
U.S. counterpart surged across the board.
Asked about the divergence, Lowe said the outlook for
inflation and wages in Australia was not as troubling as in the
United States, and markets should understand that.
Lowe said recently released data on Australian monthly
consumer prices supported arguments that inflation had peaked,
while wage figures had been softer than expected.
"These data suggest that the risk of a prices-wages spiral
remains low," said Lowe.
The figures also showed household consumption had slowed
markedly in the December quarter, bringing demand back into
better balance with supply.
"The bounce-back in spending following the pandemic has
now largely run its course," said Lowe.
"More fundamentally, the combination of cost-of-living
pressures, higher interest rates and the decline in housing
values is weighing on consumption."
(Reporting by Wayne Cole and Stella Qiu;
Editing by Chris Reese and Sam Holmes)
Messaging: wayne.cole.thomsonreuters.com@reuters.net))
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