Australia: RBA raises rate in October; hints at further hikes ahead
At its monetary policy meeting on 4 October, the Reserve Bank of Australia (RBA) hiked the official cash rate (OCR) from 2.35% to 2.60%. The decision came in below market expectations. The Bank hinted at further tightening ahead.
The Bank raised rates again in an effort to keep inflation expectations anchored and tame inflation, which is being fanned by both external and domestic factors. High commodity prices, accelerating wage growth and robust domestic demand continue to exert upward pressure on prices. The Bank expects inflation to peak later this year and then decline towards the 2.0–3.0% target range in 2023, thanks to easing global supply-side bottlenecks, stabilizing commodity prices and rising interest rates. Inflation is seen averaging 7.8% in 2022, slightly above 4.0% in 2023, and around 3.0% in 2024.
The Bank maintained a hawkish tone in its communiqué, reiterating that it “expects to increase interest rates further over the period ahead”. However, it reiterated that future monetary policy decisions will be guided by data and the evolving outlook for inflation and the labor market.
Commenting on the decision, Robert Carnell, economist at ING, stated:
“In short, it looks as if the period of 50bp rate hikes in Australia has come to an end. Yes, there is flexibility in the current statement text to allow for the possibility of 50bp hikes in the future if the data on inflation, growth, employment, wages, etc comes in too strong, but we sense from this text and previous RBA hints, that they would be far more comfortable erring on the side of caution.”
The next monetary policy meeting is scheduled for 1 November.