Reserve Bank of Australia hikes interest rate again

Philip Lowe, Governor of the Reserve Bank of Australia.

The Reserve Bank of Australia (RBA) has increased the cash rate target by 25 basis points to 3.60 per cent.

It was the tenth consecutive rate hike by the RBA. Australia’s annual inflation rate currently sits at 7.8 per cent

RBA Governor Philip Lowe noted that global inflation remained very high.

“In headline terms, it is moderating, although services price inflation remains elevated in many economies,” he said.

“It will be some time before inflation is back to target rates. The outlook for the global economy remains subdued, with below-average growth expected this year and next.

“The monthly CPI indicator suggests that inflation has peaked in Australia. Goods price inflation is expected to moderate over the months ahead due to both global developments and softer demand in Australia.”

But services price inflation remained high, with strong demand for some services over the summer.

Rents were increasing at the fastest rate in some years, with vacancy rates low in many parts of the country.

The central forecast was for inflation to decline this year and next, to be around 3 per cent in mid-2025, he said.

The RBA board said it expected that further tightening of monetary policy would be needed to ensure that inflation returns to target and that this period of high inflation is only temporary.

Growth in the Australian economy has slowed, with GDP increasing by 0.5 per cent in the December quarter and 2.7 per cent over the year.

Growth over the next couple of years is expected to be below trend.

Household consumption growth has slowed due to the tighter financial conditions and the outlook for housing construction has softened.

In contrast, the outlook for business investment remained positive, with many businesses operating at a very high level of capacity utilisation, Lowe said.

The Australian dollar dropped against the US dollar. The kiwi dollar is currently trading at A88.5c.