Fifth 25-Basis Point Interest Rate Hike of 2023 Done in Australia
November 7, 2023
As expected, officials at the Reserve Bank of Australia ended a five-month pause in their interest rate-tightening cycle, which previously had seen the Official Cash Rate climb from a pandemic low of 0.10% (Nov 2020-May 2022) to 3.1% by the end of 2022 and 4.1% by early June of this year. Today’s increase was by 25 basis points to 4.35% and explained in Governor Michele Bullock’s statement as follows:
Since its August meeting, the Board has received updated information on inflation, the labour market, economic activity and the revised set of forecasts. The weight of this information suggests that the risk of inflation remaining higher for longer has increased. While the economy is experiencing a period of below-trend growth, it has been stronger than expected over the first half of the year. Underlying inflation was higher than expected at the time of the August forecasts, including across a broad range of services. Conditions in the labour market have eased but they remain tight. Housing prices are continuing to rise across the country.
The statement revises the 2024-2025 CPI likely path upward, falling only to around 3.5% by end-2024 and hovering about 3.0% a year later, which represents the ceiling of the 2-3% medium-term targeted range. The statement talks of many and significant uncertainties surrounding the forecast and reaffirms a data-dependent meeting-to-meeting rate-setting process that will pay particular attention to “developments in the global economy, trends in domestic demand, and the outlook for inflation and the labour market.” There is a reference to a possible further increase in the OCR but no mention of when or by how much the rate might be lowered in the future. Thus for now, the short-term policy risk is tilted toward an increase in Australia. Needless to say, the same can be said about many other key central banks.
Copyright 2023, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
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