RBA raises cash rate by 25bps to 3.10% as widely expected. Tightening bias is maintained as “the Board expects to increase interest rates further over the period ahead”, even though it’s “not on a pre-set course”. The size and timing of future rate hikes will continue to be determined by incoming data and the outlook for inflation and job market. The path to slow inflation and achieve a soft landing remains a “narrow one”.
The central bank expects inflation to peak at around 8% in Q4, and then decline next year due to “ongoing resolution of global supply-side problems, recent declines in some commodity prices and slower growth in demand”. Medium-term inflation expectations “remain well anchored”. Inflation is expected to decline to “a little over 3 per cent over 2024”.
RBA also expects growth to “moderate over the year ahead” to 1.50% in 2023 and 2024. Labor market remains “very tight” but employment growth has slowed. Wages growth is “continuing to pick up”. “Given the importance of avoiding a prices-wages spiral, the Board will continue to pay close attention to both the evolution of labour costs and the price-setting behaviour of firms in the period ahead.”
