RBA raised the cash rate target by 25bps to 3.60%, which was widely anticipated. The bank also signaled the need for further tightening of monetary policy. Nevertheless, there was a notable dovish twist in the the statement about a lower risk of prices-wages spiral.
The central bank said monthly CPI indicator suggested that “inflation has peaked in Australia”. The central forecasts is for inflation to decline this year and next to around 3% in mid-2025. Medium-term inflation expectations remain “well anchored”.
Growth over the next couple of years is expected to be “below trend”. Labor markets remains “very tight, although conditions have eased a little”. Wage growth is “still consistent with the inflation target” and “recent data suggest a lower risk of a cycle in which prices and wages chase one another”.
It indicated that “further tightening of monetary policy will be needed”. The timing and extent of further interest rate hikes will depend on “developments in the global economy, trends in household spending and the outlook for inflation and the labour market”.
