Australia’s central bank raised its benchmark rate by a quarter-point and tweaked its forward guidance triggering expectations for more hikes.
At the first board meeting of the year, the Reserve Bank of Australia policymakers decided to lift the cash rate target by 25 basis points to 3.35 percent. The rate decision came in line with expectations.
The interest rate on Exchange Settlement balances was also raised by 25 basis points to 3.25 percent.
The current sequence of policy tightening has taken the cash rate target to 3.35 percent from 0.10 percent, indicating a total 325 basis-point increase since April 2022.
“The Board expects that further increases in interest rates will be needed over the months ahead to ensure that inflation returns to target and that this period of high inflation is only temporary,” RBA Governor Philip Lowe said.
Turning more hawkish, the bank excluded the qualification used at the earlier decisions – “not on a pre-set course.”
Following the announcement, interest rates are expected to rise more and stay higher for longer, ING economist Robert Carnell said.
Meanwhile, Westpac Chief Economist Bill Evans maintained his view on the cash rate going forward. The economist expects the interest rate to peak at 3.85 percent. The rate is set to rise by a quarter point in March and a final hike of another 25 basis points at the May meeting.
Lowe said further pace of tightening will be based on the developments in the global economy, trends in household spending and the outlook for inflation and the labor market.
RBA forecast CPI inflation to ease to 4.75 percent this year and to around 3 percent by mid-2025. Medium-term inflation expectations remain well anchored, and it is important that this remains the case.
The unemployment rate is expected to rise to 3.75 percent by the end of this year and 4.5 percent by mid 2025. The bank projected economic growth to ease to around 1.5 percent over 2023 and 2024.
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