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Australia Monetary Policy October 2023

Australia: RBA stands pat in October; reiterates further hikes possible ahead

At its monetary policy meeting on 3 October, the Reserve Bank of Australia (RBA) left the official cash rate (OCR) unchanged at 4.10%. The decision to stand pat for the fourth consecutive meeting follows a cumulative 400 basis point increase in the OCR since May 2022.

The Bank decided to hold fire for two reasons. First, the previous tightening is already having a dampening effect on domestic demand and, therefore, on inflation. Second, the Bank wants time to evaluate the impact of prior hikes to avoid overdoing monetary tightening against an uncertain economic backdrop.

The Bank maintained a hawkish tone in its communiqué, reiterating that “further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable timeframe”. The Bank currently projects inflation to return to the 2.0–3.0% target range in the medium run. Meanwhile, 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, household spending, the labor market and the global economy would guide future monetary policy decisions. The Bank highlighted the risk that elevated inflation becomes entrenched in expectations. Our panelists expect the RBA to hike slightly by the end of the year.

The next monetary policy meeting is scheduled for 7 November.

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