RBA Increased the Cash rate by 25 basis points to 35 basis points.

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At the meeting on 03 May 2022, the Reserve Bank of Australia board decided to increase the cash rate target by 25 basis points to 35 basis points. The board also increased the interest rate on Exchange Settlement balances from 0% to 25 basis points.

The board judged that it was the right time to start withdrawing some of the extraordinary support that was there to help the Australian economy during the pandemic. The economy has proven to be resilient, and inflation picked up quickly and is higher than expected. Over the year to the March quarter, headline inflation was 5.1%, and in underlying terms, inflation was 3.7%. The central forecast for headline inflation to around 6%, and underlying inflation of around 4.75% for 2022. The headline inflation and underlying inflation are forecasted to be about 3% by Mid-2024.

The board also highlighted that the outlook for the growth of the Australian economy also remains positive, despite the ongoing uncertainties about the global economy arising from the ongoing COVID-19 disruption in China, the Ukraine - Russia war, and declining consumer purchasing power from higher inflation. The central forecast is for Australian GDP to grow by 4.25% over 2022 and 2% over 2023.

The resilience of the Australian economy is evident, especially in the labour market, as the unemployment rate declining over recent months to 4%, and also labour force participation increasing to a record high. The central forecast for the unemployment rate to decline to around 3.5% by early 2023 and will remain around this level thereafter. This would be the lowest rate of unemployment in almost 50 years.

Given the progress towards full employment and the evidence on prices and wages, the board decided to withdraw the extraordinary monetary support provided during the pandemic. The board also doesn't plan to reinvest the proceeds of maturing government bonds and expects to decline in the bank's balance sheet over the next couple of years as the Term Funding Facility comes to an end.

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