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Australia Monetary Policy June 2022

Australia: RBA hikes rate further in June; hints at further hikes ahead

At its monetary policy meeting on 7 June, the Reserve Bank of Australia (RBA) hiked the cash rate from 0.35% to 0.85% and hinted at further tightening ahead.

The Bank raised rates again due to higher-than-expected inflation amid a resilient domestic economic backdrop. Price pressures are stemming from global supply bottlenecks, higher commodity prices and the war in Ukraine, as well as domestic capacity constraints. The Bank sees inflation increasing further ahead, mainly owing to higher energy prices, and only declining back towards the 2.0–3.0% target range next year.

The Bank maintained a hawkish tone in its communiqué, stating that “the resilience of the economy and the higher inflation mean that this extraordinary support is no longer needed” and that it therefore “expects to take further steps in the process of normalizing monetary conditions in Australia over the months ahead”.

Commenting on the release, Robert Carnell, regional head of Asia-Pacific research at ING, stated:

“The RBA has maybe bought itself a bit of time with this larger-than-expected hike. As it meets more frequently than the US Fed, it doesn’t need to keep up this pace of tightening at each meeting to remain more or less in step with the Fed. So we may see a reversion to 25 basis points at the next meeting. However, there is still a long way to go. Many analysts reckon Australia’s neutral interest rates lie somewhere around 3.5%. With a lot of Australia’s inflation being imported from overseas, it may not require rates to rise quite that high at their peak in order to choke off inflation.”

The next monetary policy meeting is scheduled for 5 July.

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