RBA raises rates for seventh consecutive month as inflation expected to keep rising
The RBA has raised interest rates in Australia to a nine-year high.
The Reserve Bank of Australia (RBA) has raised interest rates for the seventh consecutive month, this time by 0.25%, taking the official cash rate to 2.85%.
An increase in the official cash rate was anticipated by the market, with the only deciding factor being whether it would be by 25 or 50 basis points.
The less than aggressive move by the central bank is somewhat of a surprise given it warned in that same statement that it expects inflation to remain high.
In September, Australia’s consumer price index inflation rate hit 7.3%, which is the highest it has been in more than three decades.
“Global factors” were blamed in RBA governor Philip Lowe’s statement, with, somehow, no central bank taking the heat individually for keeping interest rates at record lows for years on end when it was obvious to anyone paying attention that it was creating asset bubbles, specifically in the property market.
The other cause for the high inflation according to Mr Lowe is “strong domestic demand” compared to the local markets’ ability to meet that requirement.
This is being reflected in the recent shift around the world away from globalisation to national production, following the global orchestrated lockdowns which disrupted supply chains.
Inflation hasn’t peaked yet
Just when you thought we’d seen the worst of it, there’s more to come, as the RBA noted.
Historically we’ve seen inflation advance in waves.
“A further increase in inflation is expected over the months ahead, with inflation now forecast to peak at around 8% later this year,” Mr Lowe said.
While inflation is forecast to decline after this year, it would be coming down from excessively high levels.
2023 will see inflation drop?
Next year it’s expected that a resolution in global supply problems, declining commodity prices and slowing demand will see inflation levels cool off.
While this may be true, the RBA’s forecast is for CPI inflation to be around 4.75% in 2023 and just over 3% in 2024.
The central bank typically targets 2-3% inflation in a calendar year.
More rate rises on the way
The RBA is seemingly playing the long game with inflation rather than trying to step in and raise rates too fast.
While rates have been on the rise in recent months, they’re still at historically low levels.
“The board has increased interest rates materially since May. This has been necessary to establish a more sustainable balance of demand and supply in the Australian economy to help return inflation to target,” Mr Lowe said.
“The board expects to increase interest rates further over the period ahead. It is closely monitoring the global economy, household spending and wage and price-setting behaviour,” he added.