Another Australian Central Bank Rate Hike, and This One Was Not Anticipated

June 6, 2023

With Australian consumer price inflation receding to 7.0% last quarter from 7.8% in the final quadrant of 2022, analysts were expecting officials at the Reserve Bank of Australia to leave the Official Cash Rate steady at 3.85%. Instead, such was raised for the twelfth time since May 2022. This was the seventh 25-basis point increase since October, prior to which four consecutive 50-bp hikes and an initial 25-bp move had been undertaken. In all, the OCR has been increased by four percentage points from 0.10% to an 11-year high of 4.10%, and Governor Lowe’s statement of explanation leaves the door open to even more possible rate hike: “Some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable timeframe… The Board will continue to pay close attention to developments in the global economy, trends in household spending, and the outlook for inflation and the labor market.” Core CPI of 6.6% is just 0.3 percentage points below its record high, unit labor costs are climbing briskly, and persistent service price inflation continues both at home and overseas. In short, it will be quite a while before in-target inflation, defined as a corridor of 2-3%, is restored, and officials worry that without their vigilance that price expectations will creep upward.

Copyright 2023, Larry Greenberg. All rights reserved. No secondary distribution without express permission.



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