A peek into key points in RBA’s monetary policy decision

In the meeting on 04 October 2022, RBA increased the cash rate target by 25 basis points to 2.60%. It also improved the interest rate on Exchange Settlement balances by 25 basis points to 2.50%. RBA’s Board is committed to returning inflation to 2 to 3% range over time. RBA pointed out that its increase in the interest rates will help attain this goal, and further increases are expected to be essential over the period ahead. The cash rate has been improved considerably in a short period of time. As a result, the Board decided to surge the cash rate by 25 basis points in October as it evaluates the outlook for inflation as well as economic growth in Australia.

RBA highlighted that there would be further growth in inflation over the coming months before it declines towards the 2 to 3% range.

Key points related to an expected moderation in inflation in 2023 include:

The continuing resolution of global supply-side difficulties.

• The decline in commodity prices
• Impact of rising interest rate.

Medium-term inflation is anticipated to stay fixed. Further, RBA expects CPI inflation to be ~7.75% over 2022, slightly above 4% over 2023, and ~3% over 2024.

Key details about the Australian economy:

The Australian economy is continuing to grow firmly, and national income is being increased by a record level in terms of trade.

• The labour market is very tight currently. Thus, several firms are facing challenges while hiring workers.
• The unemployment rate in August was 3.5%. It is around the lowest rate in nearly 50 years. With the rising job vacancies, RBA expects this number to drop in the coming period.
• Wage growth continues to grow from the low rates of recent years, although it stays below compared to other advanced economies where inflation is higher.

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