RBA announces fifth interest rate rise

This is the fifth interest rate rise in a row with the RBA aiming to bring the rate of inflation back to the 2–3 per range cent over time.

AMP chief economist Shane Oliver said while demand remains strong, capacity utilisation is at or around record levels and price pressures remain intense with inflation still high and likely to rise to around 7.5 per cent by year end.

“As such the RBA remains under pressure to bring demand back into line with supply and to continue signalling that it is committed to its 2–3 per cent inflation target in order to keep inflation expectations down,” said Mr Oliver.

BIS Oxford Economics Sean Langcake said the RBA has indicated rates need to higher before they enter neutral territory.

“[However], headwinds are mounting, and we expect the Bank will pause to assess the impact of higher rates sooner rather than later,” said Mr Langcake.

Peter Boehm from Pathfinder Consulting predicts the cash rate will be sitting at around the 2.5 per cent market by the end of the year.

“This means the RBA have to keep increasing rates over the next couple of months,” said Mr Boehm.

“No current economic or financial data has come to light which would cause the RBA to deviate off its stated path of rate increases to combat inflation — even though such a strategy will probably do more harm than good with limited positive impact on bringing prices down."

KPMG senior economist Sarah Hunter said although the drop in employment in July suggests that growth momentum is now easing, activity levels are still very high in absolute terms. 

“The economy is testing the limits of its supply side capacity, and in this environment, inflationary pressures remain elevated,” said Ms Hunter.

“The RBA will be conscious of the need for further increases in the cash rate to tame these pressures.”