Reserve Bank of Australia raises cash rate by 25 basis points, more hikes to come

Australian infaltion ran hot in 2022. Photo / File

The Reserve Bank of Australia (RBA) has lifted its cash rate target by 25 basis points to 3.35 per cent in its quest to beat high inflation.

The bank said more rate hikes would be needed in the months ahead.

Today’s move was in line with market expectations.

The bank, in a statement, noted that inflation remained high.

“It is, however, moderating in response to lower energy prices, the resolution of supply-chain problems and the tightening of monetary policy,” Reserve Bank Governor Philip Lowe said.

“It will be some time, though, before inflation is back to target rates,” he said.

The bank noted that the outlook for the global economy remained subdued, with below average growth expected this year and next.

In Australia, CPI inflation over the year to the December quarter was 7.8 per cent, the highest since 1990.

Lowe said global factors explained much of this high inflation, but strong domestic demand was adding to the inflationary pressures in a number of areas of the economy.

The RBA said inflation is expected to decline this year due to both global factors and slower growth in domestic demand.

In its statement, the RBA noted that the Australian labour market remained very tight and that wage growth was picking up.

The RBA is seeking to return inflation to the 2–3 per cent range while keeping the economy on an even keel.

“The (RBA) Board expects that further increases in interest rates will be needed over the months ahead to ensure that inflation returns to target and that this period of high inflation is only temporary,” it said.