Australian Monetary Policy, August 2022

At its monetary policy meeting on August 2, the Reserve Bank of Australia (RBA) raised its official interest rate (OCR) from 1.35% to 1.85%, in line with market expectations. Moreover, the Bank hinted at further tightening.

The bank raised rates in an attempt to curb inflation, which is fueled by both external and internal factors. Protracted global supply disruptions, a tight domestic labor market and strong domestic demand continue to put upward pressure on prices. Inflation jumped to 6.1% in the second quarter and the Bank expects it to peak later this year before falling to a target range of 2.0-3.0% in 2023 as global supply-side restrictions ease, stabilization commodity prices and higher interest rates. Inflation is expected to be at 7.8% in 2022 overall, slightly above 4.0% in 2023 and around 3.0% in 2024.

The bank maintained a hawkish tone in its communiqué, reiterating that it “looks to take further steps in the process of normalizing monetary conditions in Australia in the coming months.” However, he reiterated that he would pursue monetary policy “not along a predetermined path”, but guided by data and changing forecasts of both inflation and the labor market.

Commenting on the release, Lee Sue Ann, an economist at UOB, said:

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

The next meeting on monetary policy is scheduled for September 6.

FocusEconomics experts are still evaluating their forecasts in light of the latest decision of the Reserve Bank of Australia.