Tenth Consecutive Interest Rate Rises
The Reserve Bank of Australia (RBA), yesterday, increased interest rates yesterday by .25% to 3.6%. The tenth consective interest rate rise has taken the cash rate to its highest level since May 2012, as the RBA battles Australia’s worst inflation outbreak in decades, fuelled by a combination of supply chain problems and strong consumer demand.
The Governor of the RBA, Dr Lowe said in a statement that “further tightening of monetary policy will be needed”, implying at least one further interest rate rise is guaranteed, while moves higher are less certain. With the Australian Bureau of Statistics’ monthly inflation indicator for January softening considerably to 7.4 per cent, Dr Lowe said inflation in Australia had peaked. However, the central bank does not expect inflation to return to the top of its 2 to 3 per cent target band until mid-2025.
Speaking in parliament on Tuesday, Treasurer Jim Chalmers said the sting of higher rates would make life harder for households, and sought to distance the government from any suggestion it was contributing to inflation. “Australians understand a lot of this inflation is coming at us from around the world, and they understand the broken supply chains here in Australia have been part of the problem as well,” Dr Chalmers said.
With another interest rate rise in April all but confirmed, the March quarter inflation figures and the outcome of the next two monthly labour force surveys will be critical for determining whether the RBA also increases interest rates in May.
While employment has decreased in the past two labour force surveys, Dr Lowe said the declines partly reflected changing seasonal patterns, suggesting the central bank is sceptical that the jobs market has cooled to the extent suggested by data.
Dr Lowe said the board’s priority remained to return inflation to the central bank’s 2 to 3 per cent target range.
“In assessing when and how much further interest rates need to increase, the board will be paying close attention to developments in the global economy, trends in household spending and the outlook for inflation and the labour market,” he said.
“High inflation makes life difficult for people and damages the functioning of the economy. And if high inflation were to become entrenched in people’s expectations, it would be very costly to reduce later, involving even higher interest rates and a larger rise in unemployment.”