Reserve bank of Australia hikes cash rate target to 3.35%
Inflation Pressures Drive RBA's First Interest Rate Decision of 2023
"The Reserve Bank of Australia (RBA) made its first interest rate decision of 2023 by hiking the cash rate target by 25 basis points to 3.35 percent. The announcement follows Australia's largest annual increase in inflation since 1990, which put pressure on the RBA to take action.
Mortgage Choice CEO, Anthony Waldron, said, "With Australia recently recording the largest annual increase in inflation since 1990, the Reserve Bank was under pressure to kick off 2023 with another rise to the cash rate."
Moody's Analytics macroeconomist, Harry Murphy Cruise, believes that with inflation still much higher than desired, a further rate hike in February is likely. "We anticipate interest rates to stay at a peak of 3.35 per cent through 2023, helping to gradually unwind current price pressures", Cruise stated.
He added that as inflation returns to the RBA's target band of 2% to 3% in 2024, households and businesses can expect a reprieve as the board cuts rates from their contractionary levels.
University of Sydney Professor of Macroeconomics, James Morley, said that the RBA is not worried about an imminent recession and is expecting any downward external drag on economic conditions to come later. “I believe the RBA will signal more in advance before they pause.
"There has been no such signal yet" Morley said. "They could raise in the next two meetings, or three if they want to see the first quarter inflation number being substantially lower before pausing their increases. I think increases will be by 25bp increments, consistent with the RBA's recent gradualism approach."
ABC Refinery economist, Nicholas Frappell, said that strong labour data and the latest Consumer Price Index (CPI) data suggest that interest rates will continue on an upward path towards their expected terminal rate.
Overall, the RBA's decision to hike the cash rate target to 3.35 percent reflects its efforts to curb inflation and maintain economic stability. The next few months will provide insight into how the RBA's monetary policy will impact the economy and whether further rate hikes will be necessary."
