The decision:
At its meeting this month, the Reserve Bank board decided in favour of a tenth consecutive increase in the cash rate. The board have decided to increase the cash rate by 25-basis points, bringing the cash rate to 3.60 per cent. This is its highest level since May 2012.
Key factors that support the basis for the decision:
The most recent GDP figures indicate an increase of 0.5 per cent for the December quarter and 2.7 per cent over the 2022 calendar year. Conversely, the monthly CPI indicator suggests that inflation has peaked in Australia. Price inflation of Goods is expected to diminish over the coming months, though services price inflation remains high.
The Reserve Bank has indicated that inflation is forecast to decline this year and into 2024, reaching the top end of its 2-3 per cent target range in mid-2025.
What this indicates for future rate decisions:
On numerous occasions the Reserve Bank had stated that “further increases in rate rises will be needed”. However, the tone of the most recent statement from Governor Philip Lowe seems less forceful than previous announcements. The central bank has now said they expect “further tightening of monetary policy” to ensure that “this period of high inflation is only temporary”.
The cash rate is tipped to peak at around 4.1 per cent, indicating further rate increases. However, Philip Lowe has stated that the bank is getting “closer to the point where it will be appropriate to pause interest rate increases”.
The Board have once again stated that their priority remains returning inflation to the targeted 2-3 per cent range.