Sydney
Reuters
—
Australia’s central bank raised its cash rate by 25 basis points to a decade-high of 3.35% on Tuesday and reiterated that further increases would be needed, in a more hawkish policy tilt than many had expected.
Wrapping up its February policy meeting, the Reserve Bank of Australia (RBA) also dropped previous guidance that it was not on a pre-set path and forecast inflation would only return to the top of its target range of 2-3% by mid-2025.
“The Board expects that further increases in interest rates will be needed over the months ahead to ensure that inflation returns to target and that this period of high inflation is only temporary,” governor Philip Lowe said in a statement.
Markets were surprised by the hawkish tone of the RBA which shattered any expectations of an imminent pause to the tightening campaign. The futures market has priced in a peak…
2023-02-07 01:05:40 Australia’s central bank signals more tightening ahead after hiking rates to decade high
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Australia’s central bank has signalled that more monetary policy tightening is likely in the months ahead, after increasing its official cash rate to a decade-high of 1.75 per cent this week.
The Reserve Bank of Australia’s (RBA) decision to lift the cash rate from a near-record low of 1.5% reflects a broad pick up in the nation’s economy. Although labour market data released yesterday showed unemployment has edged higher to 5.8%, the RBA Governor has said this was mostly due to a rise in the participation rate, which reflects increasing willingness of people to look for work.
The Governor has also noted that inflation levels remain within the bank’s target range, spreading confidence that the economy is set to deliver an “above-trend” growth rate.
Commenting on the RBA’s decision, Australia Institute senior economist Matt Grudnoff said the decision “is consistent with the RBA’s intention to lift the rate gradually and gradually move it back towards the average of the last 30 or 40 years”.
However, Mr Grudnoff warned that higher rates may result in increased credit costs for consumers and businesses, particularly those already under pressure from higher mortgage rates.
RBA Comm Sec Chief Economist Craig James also noted that current borrowing costs remain historically low and that rate hikes are both manageable and beneficial for the economy as a whole.
“It is important to understand the RBA’s actions are aimed at sustaining an expanding economy and, more broadly, enhanced living standards of Australians,” he said.
For now, the RBA has kicked off 2018 by delivering the first in what may be a series of further hikes this year, signalling further tightening ahead for the Australian economy.
