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Australia Monetary Policy December 2022

Australia: RBA raises rate in December; hints at further hikes ahead

At its monetary policy meeting on 7 December, the Reserve Bank of Australia (RBA) hiked the official cash rate (OCR) from 2.85% to 3.10%. The decision matched market expectations.

The Bank hiked rates again in a bid to curb inflation, which is being fueled by both external and domestic factors. Global economic conditions, accelerating wage growth and an imbalance between demand and available productive capacity continue to exert upward pressure on prices. The Bank expects inflation to peak at around 8.0% in Q4—increasing further from Q3s over three-decade high—and then decline in 2023, thanks to easing global supply-side bottlenecks, stabilizing commodity prices and cooling domestic demand, with the lagged effect of higher interest rates a factor in the latter. The RBA sees inflation declining to almost 3.0% in 2024. Meanwhile, the Bank sees the economy expanding by around 1.5% in both 2023 and 2024.

The Bank maintained a hawkish tone in its communiqué, stating that it “expects to increase interest rates further over the period ahead”. However, it reiterated that future monetary policy decisions would be guided by data and the evolving outlook for inflation and the labor market.

Commenting on the decision, economists at ING, stated:

“Since the RBA has policy meetings approximately every month, it can continue to hold a very straightforward meeting-by-meeting, data-dependent approach, and there was unsurprisingly very little forward guidance in todays statement except for the vague reference to more tightening ahead. We currently forecast the RBA peak rate at 3.60% and a 25bp rate hike at the next meeting.”

The next monetary policy meeting is scheduled for 7 February.

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