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Australia Monetary Policy September 2023

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

At its monetary policy meeting on 5 September, the Reserve Bank of Australia (RBA) left the official cash rate (OCR) unchanged at 4.10%. The decision to stand pat for the third 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.

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, domestic demand, the labor market and the global economy would guide future monetary policy decisions. For example, there is a risk that elevated inflation could become 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 3 October.

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

“We continue to believe the RBA will keep policy unchanged at the next meeting on 3 October, although we are penciling a chance it will hike one last time this year, taking the cash rate target to a peak of 4.35%. In terms of timing, this is likely to occur at the 7 Nov meeting, following the release of the Q3 2023 CPI on 25 October. Another factor that could prompt the RBA to hike once more is the risk that wages in the third quarter could spike higher after a large mandated increase in the minimum and award wages.”

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