RBA raises cash rate to 4.60 per cent as inflation risks increase
SYDNEY — The Reserve Bank of Australia (RBA) has raised the cash rate target by 25 basis points to 4.60 per cent, citing persistent inflation pressures and increasing risks to the economic outlook.
The decision was made unanimously at the RBA Board’s meeting today. The central bank said several risks to inflation identified in August were now materialising, including higher global energy prices linked to the broader conflict in the Middle East and strong demand for technology-related goods associated with artificial intelligence investment. The RBA said domestic cost pressures also remained significant, with businesses reporting higher costs and either increasing prices or considering further price increases. Recent Australian inflation data was also stronger than the Board had expected at its previous meeting.
Economic growth and household spending
The RBA said economic growth had slowed, although output growth in the June quarter was somewhat stronger than previously expected. Consumer spending appears to be easing gradually, while housing prices have fallen in most capital cities and new housing loans have declined noticeably. Labour market conditions have also eased broadly as expected, while indicators of future labour market conditions remain broadly stable. At the same time, business investment and debt growth remain strong.
Global uncertainty
The RBA said the economic outlook remains highly uncertain, particularly because of the unresolved conflict in the Middle East and disruptions to global oil supplies. Higher energy prices are putting additional pressure on inflation in Australia and overseas. The central bank warned that a prolonged period of uncertainty could also weaken economic growth.
However, growth among Australia’s major trading partners has been stronger than expected, partly because increased investment related to artificial intelligence has outweighed some of the negative effects of the Middle East conflict. The RBA also identified weak productivity growth as a continuing constraint on Australia’s potential economic growth and noted uncertainty surrounding the economic effects of the downturn in the housing market.
Further rate rises possible
The RBA said the recent increases in the cash rate had tightened financial conditions and that the Australian economy appeared to be slowing. However, with inflation remaining too high, the Board judged that another increase in the cash rate was necessary to support a return of inflation to target within a reasonable period. The central bank said it would continue to assess economic data and risks and could increase the cash rate further if necessary.
The RBA said monetary policy remained focused on achieving price stability and full employment.
Source: Reserve Bank of Australia
