The Reserve Bank of Australia (RBA) hiked rates of interest on Tuesday, likely expected, and signalled more hikes this year as it seeks to tame high inflation. However also warn the economic growth will probably decelerate in the short term.
The RBA increased its cash target up by 25 Bps to a more than 10 years high to 3.35%. Bringing the total increase in this interest rate increases cycle to 325 bps.
Since that inflation is heading much higher than the central bank’s goal range of 2% – 3%. RBA Governor Philip Lowe stated in a statement that additional interest rate increases are still required.
In a statement, Lowe predicted that “further hikes in bond yields will be necessary over the coming months to guarantee that inflation recovers to goal and that current high inflation period is just temporary.”
In response to the RBA’s decision, the Australian dollar strengthened 0.8% to 0.6936 US dollars.
Despite several rate increases by the RBA throughout 2022. Consumer price index inflation increased at an annual rate to 7.8% in the Dec quarter biggest increase in more than 30 years.
However, the bank moderated its rate hike pace near the end of the year. In order to achieve a balance between containing inflation and keeping economy in a stable keel.”
“RBA Interest Rate Hikes in 2023”
According Lowe, as the consequences of high bond yields started to be experienc. Inflation is anticipat to decrease this year and reach 4.75% by end of 2023. However, the central bank’s aim for Consumer prices inflation is only projected to be reached by 2025. Indicating further economic turmoil for Australia.
The Australian economy’s route towards a smooth landing, Lowe added on Tuesday, “stays a narrow one.” In 2023 and 2024, he forecasted the economic growth would decrease to roughly 1.5% because the early boost from COVID reopening seemed to have peaked.
In addition, the RBA governor predicted that unemployment would climb, with national rate estimated to reach 3.75% by the end of 2023 & 4.5% by the middle of 2025.
Australian economic growth slowed down more than expected in the 3rd quarter as a result of high inflation and higher interest rates. In recent months, there has also been a drop in retail sales & consumer confidence.