RBA lifts cash rate to 1.85%BY ANDREW MCKEAN | WEDNESDAY, 3 AUG 2022 12:45PM
Read more: Inflation, Reserve Bank of Australia, Citi Index, Apostle Funds Management, Jim Chalmers, Tony Sycamore, Interest rates
The Reserve Bank of Australia (RBA) has chosen to increase the cash rate by 50 basis points to 1.85%, consequently, this is now a fourth consecutive monthly rate rise.
The RBA's decision comes as it continues its attempt to return inflation to its 2-3% target range.
Presently, inflation in Australia is 6.1%, the highest it's been since the early 1990s.
The RBA claims that global factors explain much of the increases in inflation, but it doesn't entirely discount domestic factors either.
The central bank notes Australia has widespread upward pressures on prices from strong demand, a tight labour market and capacity constraints in some sectors of the economy.
Nevertheless, inflation is forecast to peak later this year at around 7.75% before moderating in 2023 the RBA stated.
Responding to the RBA decision, treasurer Jim Chalmers said: "Australians knew this was coming but it doesn't make it any easier to handle."
Chalmers commented that the government had been upfront about the growing challenges facing Australia's economy and alluded to the fact that it had inherited rising inflation, rising rates, and falling real wages.
Citi Index market analyst Tony Sycamore called the latest RBA decision a dovish surprise relative to expectations.
However, while the door remains open for future rate hikes to return inflation within the targeted band, Sycamore pointed out that the RBA's path to a soft landing was a narrow one.
Apostle Funds Management's key takeaway from the RBA statement was that the central bank reiterated returning inflation to target was its priority.
The size and timing of future interest rate hikes will be guided by incoming data and the Boards assessment of the outlook for inflation and the labour market, Apostle said.
Like Citi Index, Apostle thinks the initial reactions to the announcement had been taken as marginally positive with markets now edging back expectations of future interest rate hikes.
Looking forward, the fund manager said: "The market is clearly still trying to navigate the magnitude of interest rate hikes that the RBA needs to deliver to bring inflation back under control whilst being watchful of the impact that tighter monetary policy is having on economic activity."
"Inflation and unemployment data are going to be the two key data points that the RBA monitors over the coming months as it determines the path of interest rates."
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