Interest Rate in Australia

Australia Interest Rate

RBA stands pat in August; reiterates further hikes possible ahead

At its monetary policy meeting on 1 August, the Reserve Bank of Australia (RBA) left the official cash rate (OCR) unchanged at 4.10%. The decision to stand pat for the second 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 in order to avoid overdoing monetary tightening. On the one hand, there is a risk that elevated inflation could become entrenched in expectations; on the other hand, inflation could return to the 2.0–3.0% target range in the medium run, as currently projected by the Bank.

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”. 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 data and the evolving outlooks for inflation, domestic demand, the labor market and the global economy would guide future monetary policy decisions. Our panelists expect the RBA to hike slightly further by the end of the year.

The next monetary policy meeting is scheduled for 5 September.

Commenting on the outlook, Robert Carnell, regional head of research for the Asia-Pacific region at ING, said:

“We will be looking for one more rate hike to 4.35% at the RBA’s next meeting in September. And we will be reserving judgement on another and hopefully final one in October or November, if the macroeconomy remains resilient and if inflation is making insufficient progress.”