Australia Monetary Policy September 2022


Australia: RBA raises rate in September; hints at further hikes ahead

September 6, 2022

At its monetary policy meeting on 6 September, the Reserve Bank of Australia (RBA) hiked the official cash rate (OCR) from 1.85% to 2.35%, as had been widely expected by markets. The Bank hinted at further tightening ahead.

The Bank raised rates again in an effort to keep inflation expectations anchored and limit inflation, which is being fueled by both external and domestic factors. Protracted global supply constraints, a tight domestic labor market and robust domestic demand continue to exert upward pressure on prices. The Bank expects inflation to peak later this year and then decline towards the 2.0–3.0% target range in 2023, thanks to easing global supply-side bottlenecks, stabilizing commodity prices and rising interest rates. Inflation is seen averaging 7.8% in 2022, slightly above 4.0% in 2023, and around 3.0% in 2024.

The Bank maintained a hawkish tone in its communiqué, reiterating that it “expects to increase interest rates further over the months ahead”. However, it reiterated that it would conduct monetary policy “not on a pre-set path” but rather be guided by data and the evolving outlook for inflation and the labor market.

Commenting on the likely movements ahead, Lee Sue Ann, economist at UOB, stated:

“We look for the RBA to hike in coming months but believe that rate increases are likely to be shallower. This is largely due to a slowdown in the economy towards year-end, as the post-lockdown bounce in activity wanes, and the cumulative impact of higher interest rates dampens construction activity as well as the housing sector. We now pencil in 25bps hikes for the remaining three meetings in 2022.”

The next monetary policy meeting is scheduled for 4 October.

FocusEconomics panelists are still assessing their forecasts in light of the Reserve Bank of Australia’s latest decision.

Author: Massimo Bassetti, Senior Economist

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