Social Navigation

Reserve Bank signals further rate hikes to contain inflation in monetary policy statement


Inflation will come down faster than expected as the economy weighs under the weight of rapid rate hikes, the cost of living and rising rents, the Reserve Bank says.

In an economic update released just days after the federal budget, the central bank confirmed that inflation had peaked, but warned that the era of rate hikes is not necessarily over.

“Some further monetary policy tightening may be needed to ensure inflation returns to target within a reasonable timeframe, but that will depend on how the economy and inflation evolve,” the monetary policy statement said. the RBA.

Earlier this week, the RBA shocked markets and homeowners with an unexpected rise in its spot rate when it met earlier this week, up 25 basis points to 3.85 percent.

The Commonwealth Bank was the last of the four major banks to pass on the interest rate increase to mortgage holders on Friday morning.

Rate City’s Sally Tindall said the May rate hike could be the one that “sinks some families’ budgets into the red.”

While the RBA update acknowledged the “painful pressure” that the rapid pace of rate hikes has put on households, it reiterated its “resolute determination” to curb inflation.

The bank forecasts the consumer price index will fall to 6.3 percent in June and fall to 4.5 percent in December, before returning to the top of its target range of 2 to 3 percent by mid-2025.

“The longer inflation remains above target, the greater the risk that inflation expectations will rise and that price and wage-setting behavior will adjust accordingly,” the report said.

“If this were to happen, the end result would be even higher interest rates and a larger rise in unemployment would be needed to get inflation back on target.”

Rent, one of the main drivers of inflation, is only expected to pick up over the next year, the RBA warned.

“A shortage of housing supply, relative to strong demand from a rising population, is expected to result in continued upward pressure on rents,” the statement said.

Governor Philip Lowe has previously said that the decline in the average number of people living in each household during the pandemic also played a role in the rent crisis.

But the update showed that due to the sharp rise in rents and supply, more people were looking for a roommate.

Australia’s short-term economic forecasts were also revised downwards. Economic growth (1.7 percent) is expected to be half a percentage point lower than forecast three months ago.

It’s not improving over the year either, expected to fall from 1.6 percent to 1.2 percent in the year to December.

The bank expects the unemployment rate to rise slightly in June to 3.6 percent and reach 4 percent by the year

Reserve Bank

Joanna Swanson

Joanna Swanson is Europe correspondent at the Thomson Reuters Foundation based in Brussels covering politics, culture, business, climate change, society, economies and inclusive tech. With specific focus in breaking news, she has covered some of the world's most significant stories.