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Australia Monetary Policy April 2023

Australia: RBA stands pat in April; hints at further hikes ahead

At its monetary policy meeting on 4 April, the Reserve Bank of Australia (RBA) kept the official cash rate (OCR) unchanged at 3.60%. The decision followed 10 consecutive rate hikes—a cumulative 350 basis point increase in the OCR since May 2022.

The Bank decided to stand pat as it deemed inflation had peaked and wanted to assess the effects of previous hikes. Although available data supports the assertion that inflation has peaked, it remains well above the Bank’s 3.0% target, as accelerating wage growth amid a tight labor market continues to exert upward pressure on prices. The Bank expects inflation to decline in 2023 and 2024, thanks to easing global supply-side bottlenecks and cooling domestic demand. The RBA sees inflation declining to around 3.0% by mid-2025. Meanwhile, the Bank projects growth to stay below trend both this year and next.

The Bank maintained a hawkish tone in its communiqué, stating that “further tightening of monetary policy may well be needed to ensure that inflation returns to target”. 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 future monetary policy decisions would be guided by data and the evolving outlook for inflation, domestic demand, the labor market and the global economy.

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

“Unlike other central banks, the RBA has more meetings in a year, and so that gives them the room to pause, wait and see. We are inclined to now keep our OCR view unchanged at 3.60% for the rest of the year. However, any changes to our forecasts will depend on incoming economic data.”

The next monetary policy meeting is scheduled for 2 May.

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