Australia’s cash rate remains unchanged against the backdrop of rising inflation

The Reserve Bank of Australia (RBA) has decided to maintain its cash rate at 0.1% and terminate its bond purchase program on February 10th at its first board meeting in 2022.

“As the Board said earlier, cash rates will not be raised until actual inflation is sustainably within 2-3% of the target range,” RBA Governor Philip Lowe said in a monetary policy decision. Said. statement.. “Inflation is rising, but it’s too early to conclude that it’s consistently within target limits.”

Inflation rose faster than RBA expected, but with supply problems resolved and wage growth remaining modest, there remains uncertainty about how long rising inflation will last, Rowe said. rice field.

The RBA predicts that once supply-side problems are fixed and consumption patterns normalize, the underlying inflation rate is now 2.6%, rising further to about 3.25% and dropping to 2.75% in 2023. ..

Westpac’s chief economist, Bill Evans, has criticized the RBA for having a rhetoric that “doesn’t seem to match expectations.”

He said Rowe “is premature to conclude that inflation is persistent within the target bank,” but said he had forecasted inflation above the inflation target from 2022 to 23.

“That is, inflation is projected to remain in the upper half of the target band for at least two years!” Evans Said.. “These tactics are clearly to discourage markets from far ahead of themselves in anticipating higher interest rates.”

Economists at the Big Four expect a top-notch rate hike in late 2022, but Mr. Rowe is monitoring evolving factors that influence inflation, so the board is “patiently prepared.” Is done. “

The RBA said the labor market has recovered strongly since the first pandemic shock, dropping to 4.2% in December. The unemployment rate is expected to fall below 4% by the end of the year and further to 3.75% by the end of 2023.

Epoch Times Photo
Shoppers will walk the CBD in Sydney, Australia on December 24, 2021. (JasonMcCawley / Getty Images)

Wage growth remains modest, returning to lower levels than pre-pandemic levels, but is expected to recover as the labor market tightens.

“Although there are uncertainties about wage behavior at historically low unemployment rates, this rise is expected to remain modest,” Rowe said.

The RBA forecasts GDP growth of 4.25% in 2022 and 2% in 2023. This outlook is underpinned by a positive balance sheet, increased business investment, and supportive economic policies.

“The outbreak of Omicron affected the economy, but it didn’t upset the recovery,” Rowe said. “The Australian economy remains resilient and the number of cases is declining, so spending is expected to recover.”

Continued supply chain and distribution disruptions remain a source of economic uncertainty. It is also difficult to predict how consumption patterns will evolve and their impact on prices and inflation.

The RBA Board maintains a supportive stance on supportive monetary policy to help Australia return to full employment and inflation in line with its goals.

Gareth Aird, Head of the Australian Economic Sector at the Commonwealth Bank of Australia, expects cash rates to tighten gradually given rising levels of household debt.

“We implemented the first increase of 15bp (basis points) in August 2022, which will bring the cash rate to 0.25%,” Aird said.pdf). “We expect a 25bp increase in September 2022.”

David Plank, Head of Australia’s Economics at ANZ Bank, believes the RBA will get the desired confirmation from wages in the June Quarter Wage Price Index, which will be released in mid-August.

“I think the first move of the RBA will be very quick because the policy is so inspiring,” Planck said.pdf). “The cash rate is expected to be 0.75% by November 2022 and rise to 2% by the end of 2023.”

Rebecca Chu


Rebecca Zhu is an Australian reporter based in Sydney. She focuses on Australia’s economy, property and education. Contact her at [email protected]