Australian Central Bank says that rates are moving closer to normalization

After several strong rises, interest rates are coming closer to normalization. This statement was made on Friday by the general manager of the Central Bank of Australia. However, he warned that rates are still low, suggesting that a range of 2.5% to 3.5% would be relevant depending on economic cycles.

Reserve Bank of Australia (RBA) manager Philip Lowe was before Parliament's Economic Committee. He noted the need for further interest rate increase in order to bring inflation back within the bank's target range of 2-3%. Also, he said, it would be appropriate to slow the tempo of growth at some point.

In the Parliament's Economic Committee, in addition to words, Lowe assured that at some point a 50 basis point rate increase at each meeting would stop, and this point is coming.

Lowe said that rates should be averaging at least 2.5% and range from 2.5% to 3.5% over time, depending on the economy's operation.

According to him, rates are close to the range, which is considered normal, as they are now at 2.35%. Lowe added that it's probably still not enough and the level remains low.

The RBA key monetary rate has increased 225 basis points in only 5 months. It has reached a seven-year high of 2.35% in an attempt to hold the inflation rate under control.

The markets' predictions are not as positive as investors' ones. Some believe that central bank rates will rise to a peak of about 3.85 percent, while others are not sure about a further increase of another 50 basis points in October or a reduction in the step to a quarter of a percent.

Other major central banks are pushing the RBA to be aggressive about raising rates. Using the U.S. Federal Reserve as an example, it is expected that its rates will rise by at least 75 basis points next week.

Repeatedly basing on the influence of incoming data, inflation and labor market outlook estimates on the size and timing of future rate raises, Lowe expressed his willingness to consider a 25 basis point or 50 basis point increase at the next board meeting.

Goldman Sachs analysts have commented that a slowdown in the tempo of tightening is not unavoidable, based on the insertion of a warning "at some point".

"We still expect the RBA to raise the rate by +50 bps in October before slowing to +25 bps in November and +25 bps in December. We'll pay close attention to upcoming retail and vacancy data later this month".