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Australia Monetary Policy June 2023

Australia: RBA hikes rates in June; signals further hikes possible ahead

At its monetary policy meeting on 6 June, the Reserve Bank of Australia (RBA) hiked the official cash rate (OCR) to 4.10% from 3.85%. The move translates into a cumulative 400 basis point increase in the OCR since May 2022.

The Bank decided to keep tightening due to sticky inflation and increased upside inflation risks, and in a bid to anchor inflation expectations. Inflation remains well above the Bank’s 3.0% target, fueled by strong labor cost growth amid a tight labor market. Therefore, elevated inflation could become entrenched in expectations, requiring more aggressive tightening ahead to curb it.

The Bank maintained a hawkish tone in its communiqué, stating that “further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable timeframe”. Moreover, the RBA specified that it “remains resolute in its determination to return inflation to target and will do what is necessary to achieve that”, adding that data and the evolving outlooks for inflation, domestic demand, the labor market and the global economy would guide future monetary policy decisions.

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

“It feels like the RBA is hedging its bets on whether it will need to hike again, but we believe that inflation will fall more rapidly in the coming months […] and that this will narrow the gap between inflation and policy rates, making real policy rates less negative.”

The next monetary policy meeting is scheduled for 4 July.

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