The Reserve Bank should pause any further increases to the cash rate at its April meeting following a 25-basis point rise announced today.
“With too much hidden leverage around, the Reserve Bank must pause at its next meeting and take stock of whether rates are sufficiently restrictive to bring inflation back down to target,” ACCI chief executive Andrew McKellar said.
In less than a year, the Reserve Bank has raised the cash rate by 3.5 percentage points, with further increases foreshadowed in the months ahead.
“Like households, small businesses are feeling the pinch as they grapple with rising interest rates,” Mr McKellar added.
“Escalating interest rates mean more small businesses are struggling to keep up with loans on capital assets and buildings, as well as covering the ongoing costs of their operations.
“The Reserve Bank must be mindful of the cumulative tightening that’s already in the system and the lag effect of increasing interest rates. Households and small businesses have already stomached rapid rises and are still yet to experience their full effect.
“We are beginning to see signs that Australia has reached a turning point on inflation with negative household consumption growth and slowing economic activity recorded in the December quarter. At the same time the heat is beginning to come out of the jobs market.
“Failing to fully account for current conditions means that the Reserve Bank could move too aggressively and raise rates faster than the economy can handle.
“The Reserve Bank can’t do all the heavy lifting when it comes to taming inflation, so it is vital that fiscal policy is working in tandem with monetary policy.
“Expenditure restraint is absolutely essential in the May budget to help keep inflation under control. Any new spending measures should be targeted at driving productivity and growing the economy,” Mr McKellar said.
