Australian monetary policy August 2022

At its monetary policy meeting on August 2, the Reserve Bank of Australia (RBA) raised the official cash rate (OCR) from 1.35% to 1.85%, as was widely expected by the markets. Moreover, the bank has hinted at more tightening in the future.

The bank raised interest rates in an attempt to tame inflation, which is fueled by both external and domestic factors. Protracted global supply disruptions, a tight domestic labor market and strong domestic demand continue to exert upward pressures on prices. Inflation jumped to 6.1% in the second quarter, and the bank expects it to peak later this year and then decline toward the 2.0-3.0% target range in 2023, thanks to the easing of global supply-side constraints, stabilizing commodity prices, and higher interest rates. . Inflation is expected to reach 7.8% during 2022 as a whole, just above 4.0% in 2023 and around 3.0% in 2024.

The bank maintained its hawkish tone in its statement, stressing that it “expects to take further steps in the process of normalizing monetary conditions in Australia in the coming months.” However, he reiterated that he would apply monetary policy “not on a predetermined path” but be guided by evolving data and forecasts for both inflation and the labor market.

Commenting on the release, Lee Soo-an, an economist at the University of Bahrain, stated:

“We continue to expect the RBA to rise in the coming months but increases are likely to be slower and shallower. Our forecast remains for OCR to reach 2.10% by the end of the year, and to reach 2.50% by mid-2023.”

The next monetary policy meeting is scheduled for September 6.

FocusEconomics members are still evaluating their expectations in light of the latest RBA decision.

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