The Reserve Bank of Australia (RBA) has hiked rates by 25 basis points, bringing rates to 4.1 per cent.
Governor Phil Lowe said the decision to make another rate hike was driven by the desire to return inflation to target.
“Inflation in Australia has passed its peak, but at 7 per cent is still too high and it will be some time yet before it is back in the target range. This further increase in interest rates is to provide greater confidence that inflation will return to target within a reasonable timeframe.”
“Some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable timeframe, but that will depend upon how the economy and inflation evolve. The board will continue to pay close attention to developments in the global economy, trends in household spending, and the outlook for inflation and the labour market. The board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that.”
This followed a rise of 25 bps to 3.85 per cent last month.
Emma Lawson, fixed interest strategist-macroeconomics in the Janus Henderson Australian Fixed Interest team, said: “Governor Lowe is now focused on four main data points: retail sales, employment, the NAB business survey and Consumer Price Index (CPI). May brought about decidedly mixed reviews. Retail sales are slowing back to normal levels, and the growth is being driven by prices, not volumes. The May employment report also showed signs of normalisation from highs, with negligible employment growth and a tick up in the unemployment rate. The NAB business survey continues to show resilience, albeit coming a little lower.”
“The monthly CPI was a little higher than expected but still consistent with moderating headline CPI, while the RBA had nothing to fear from the quarterly wage price data, at 0.80% quarter on quarter (qoq). They are cautious about the upcoming annual award wage setting, and are focused on productivity, as a guide to how inflationary wages growth may be. Overall, we are seeing the first impacts of policy gripping, and it will be the stickiness of inflation that may drive policy from here.”
