RBA reveals first interest rate decision for the year
The RBA has announced its decision on the cash rate following a significant annual increase in inflation.
The Reserve Bank of Australia (RBA) today has decided to increase the cash rate target by 25 basis points to 3.35 per cent.
Mortgage Choice chief executive Anthony Waldron stated that 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.
With inflation still much higher than desirable, Moody’s Analytics macroeconomist Harry Murphy Cruise said a further rate hike in February is all but certain.
“We anticipate interest rates to stay at a peak of 3.35 per cent through 2023, helping to gradually unwind current price pressures,” he stated.
“As inflation returns to the RBA’s target band of 2% to 3% in 2024, businesses and households will be in for a well-deserved reprieve as the board cuts rates from their contractionary levels.”
University of Sydney Professor of Macroeconomics James Morley noted that with international conditions still not in recession, the RBA will be expecting any downward external drag on economic conditions to come later than what it was previously worried about.
“I believe the RBA will signal more in advance before they pause. There has been no such signal yet,” said Mr Morley.
“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 25 bp increments, consistent with the RBA's recent ‘gradualism’ approach."
ABC Refinery economist Nicholas Frappell said CPI data and strong labour data suggests rates will “continue on an upward path towards the expected terminal rate”.