Sydney Australia skyline

Australia Monetary Policy February 2023

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

At its monetary policy meeting on 7 February, the Reserve Bank of Australia (RBA) hiked the official cash rate (OCR) from 3.10% to 3.35%. The decision matched market expectations and took the cumulative increase in the OCR since May 2022 to 325 basis points.

The Bank hiked rates again in a bid to curb inflation and prevent inflation expectations from becoming entrenched. Both external and domestic factors have fueled price pressures so far, with inflation accelerating to 7.8% in Q4 from Q3’s 7.3%. Global economic conditions, accelerating wage growth and a tight labor market continued to exert upward pressure on prices. The Bank expects inflation to decline in 2023, thanks to easing global supply-side bottlenecks, stabilizing commodity prices and cooling domestic demand—partially due to higher interest rates. The RBA sees inflation averaging 4.8% in 2023 and falling to around 3.0% by mid-2025. Meanwhile, the Bank projects the economy to expand by around 1.5% in both 2023 and 2024.

The Bank maintained a hawkish tone in its communiqué, stating that it “expects that further increases in interest rates will be needed over the months ahead”. Moreover, it specified that the RBA “remains resolute in its determination to return inflation to target and will do what is necessary to achieve that”, adding that future monetary policy decisions would be guided by data and the evolving outlook for inflation, domestic demand, the global economy and the labor market.

Commenting on the outlook, Lee Sue Ann, economist at UOB, said:

“We are penciling in another two more 25 basis points hike, which will take the OCR to 3.85%, before looking for a pause. That said, the releases of Q4 2022 wage price index later this month on 22 February and Q4 2022 GDP on 1 March will be closely watched.”

Meanwhile, Robert Carnell, economist at ING, commented:

“For Australian markets, the near term is likely to see some more support for the AUD from higher rate expectations, though it would only take a soft inflation report or some weak employment data for holes to start appearing in the RBA’s assertions.”

The next monetary policy meeting is scheduled for 7 March.

Free sample report

Access essential information in the shortest time possible. FocusEconomics provide hundreds of consensus forecast reports from the most reputable economic research authorities in the world.
Close Left Media Arrows Left Media Circles Right Media Arrows Right Media Circles Arrow Quote Wave Address Email Telephone Man in front of screen with line chart Document with bar chart and magnifying glass Application window with bar chart Target with arrow Line Chart Stopwatch Globe with arrows Document with bar chart in front of screen Bar chart with magnifying glass and dollar sign Lightbulb Document with bookmark Laptop with download icon Calendar Icon Nav Menu Arrow Arrow Right Long Icon Arrow Right Icon Chevron Right Icon Chevron Left Icon Briefcase Icon Linkedin In Icon Full Linkedin Icon Filter Facebook Linkedin Twitter Pinterest